GOOD LUCK

TUTORIAL QUESTIONS ON ANNUITY

Question One

A man decides to deposit 200,000 FCFA at the end of each year in a bank which pays 10%
p.a. compound interest.

a) If the instalments are allowed to accumulate, what will be the total accumulation at the
end of 9 years?
b) If interest is compounded half yearly what will be the total accumulation at the end of
9 years?
c) If deposit are made at the beginning of each year what will be the total accumulation
at the end of 9 years?
d) What do you observe?

Question Two

A loan of 10,000,000 FCFA is to be repaid in 20 equal annual instalments of P. Find P if the

compound interest charged is at the rate of 5% p.a.

Question Three

A Professor retires at the age 60 years. He will get the pension of 35,000 FCFA paid every 3
months for the rest of his life. Reckoning his expectation of life to be 15 years and that
interest is at 10% p.a. payable quarterly. What single sum is equivalent to his pension?

Question Four

A man purchased a lorry valued at 30,000,000. He paid ` 10,000,000 at the time of purchase
and agreed to pay the balance with interest of 10% per annum compounded half yearly in 20
equal half yearly instalments. If the first instalment is paid after six months from the date of
purchase, find the amount of each instalment.

Question Five

i) A financial instrument promises to pay 10,000 Fcfa once a year forever. If the interest
rate is 10 per annum, find the present value of such an instrument.
ii) Suppose the interest rate is compounded half yearly, what becomes of the present value?
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Question Six

On January 1rst, 2010 you win a lottery with a pay-off of 25,000 FCFA at the end of every
year for the next 10 years. If you discount the cash flow at 7.8%, what will be the single
amount you will be ready to accept as a single payment on that day?

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