Mary Mickaella R.

Ventura

BSA 3-A
Chapter 5 p. 141-142 (1-10)

1. Simple Interest versus Compound Interest [LO1] First City Bank pays 8 percent simple interest
on its savings account balances, whereas Second City Bank pays 8 percent interest compounded
annually. If you made a $5,000 deposit in each bank, how much more money would you earn
from your Second City Bank account at the end of 10 years?

Solution:
10 8% $5,000
N I/Y PV PMT FV

Solve for $10,794.62

$10,794.62 – 9,000 = $1,794.62

2. Calculating Future Values [LO1] For each of the following, compute the future value:

Solution:

11 10% $2,250

N I/Y PV PMT FV

$6,419.51

7 8% $8,752

N I/Y PV PMT FV

$14,999.39

14 17% $76,355

N I/Y PV PMT FV

$687,764.17

8 7% $183,796

N I/Y PV PMT FV

$315,795.75
3. Calculating Present Values [LO2] For each of the following, compute the present value:

Solution:
6 7% $15,451
N I/Y PV PMT FV
$10,295.65

7 13% $51,557

N I/Y PV PMT FV

$21,914.85

23 14% $886,073

N I/Y PV PMT FV

$43,516.90

18 9% $550,164

N I/Y PV PMT FV

$116,631.32

4. Calculating Interest Rates [LO3] Solve for the unknown interest rate in each of the following:

Solution:
2 $240 ±$297
N I/Y PV PMT FV
11.24%

10 $360 ±$1,080
N I/Y PV PMT FV
11.61%

15 $39,000 ±$185,382
N I/Y PV PMT FV
10.95%

30 $38,261 $531,618
N I/Y PV PMT FV
 9.17%

5. Calculating the Number of Periods [LO4] Solve for the unknown number of years in each of the
following:

Solution:
9% $560 $1,284
N I/Y PV PMT FV
9.63

10% $810 $4,341

N I/Y PV PMT FV
17.61

17% $18,400 $364,518

N I/Y PV PMT FV
19.02

15% $21,500 $173,439

N I/Y PV PMT FV
14.94

6. Calculating Interest Rates [LO3] Assume the total cost of a college education will be $290,000
when your child enters college in 18 years. You presently have $55,000 to invest. What annual
rate of interest must you earn on your investment to cover the cost of your child’s college
education?

Solution:

18 $55,000 $290,000

N I/Y PV PMT FV

9.68%

7. Calculating the Number of Periods [LO4] At 7 percent interest, how long does it take to double
your money? To quadruple it?

Solution:

7% $1 $2

N I/Y PV PMT FV

10.24

7% $1 $4

N I/Y PV PMT FV

20.49
8. Calculating Interest Rates [LO3] In January 2007, the average house price in the United States
was $314,600. In January 2000, the average price was $200,300. What was the annual increase
in selling price?

Solution:
7 $200,300 $314,600
N I/Y PV PMT FV
6.66%

9. Calculating the Number of Periods [LO4] You’re trying to save to buy a new $170,000 Ferrari.
You have $40,000 today that can be invested at your bank. The bank pays 5.3 percent annual
interest on its accounts. How long will it be before you have enough to buy the car?

Solution:
5.30% $40,000 $170,000
N I/Y PV PMT FV
28.02

10. Calculating Present Values [LO2] Imprudential, Inc. has an unfunded pension liability of $650
million that must be paid in 20 years. To assess the value of the firm’s stock, financial analysts
want to discount this liability back to the present. If the relevant discount rate is 7.4 percent,
what is the present value of this liability?
Solution:
20 7.4% $650,000,000
N I/Y PV PMT FV
$155,893,400.13