AAMS1773 – Quantitative Studies

Chapter 8- Financial Mathematics

Tutorial 8 (EXTRA)
1. Kelvin receives annual salary of RM 30960. At the end of each year, his annual salary increases by RM 120. Calculate
(i) Kelvin’s salary during the fifth year,
(ii) The total salary received by Kelvin over the 5-year period.
[answer: (i) RM31440 (ii) RM156000]

2. Find the accrued amount after 3 years if RM 3860 is invested at 4% per year compounded
(i) Annually.
(ii) Quarterly.
[answer: (i) RM4341.98 (ii) RM4349.54]

3. A couple decides to invest some money in an account for use during retirement. Their goal is to have RM200000 in 20
years. The account pays 6% interest compounded quarterly.
(i) How much do they need to invest to meet their goal?
(ii) How much interest will they earn?
(iii) What is the Effective Annual Rate (EAR)?
[answer: (i) RM60778.03 (ii) RM139221.97 (iii) 6.14%]

4. Min Huat has decided to make annual payments of RM 1200 at the beginning of each year for 10 years into an investment
that will yield 6% compounded annually. What is the amount deposited at the beginning of first year at 6% compounded
annually will result in the same future value?
[answer: RM9362.03]

5. Find the sum of the first 15 terms for the following sequences.
(i) 12, 17, 22, ……
(ii) 4, 8, 16, ……
[answer: (i)705 (ii) 131068]

6. Ian plans to start his business in 3 years. He predicts that he will need RM20000 to do so. What is the amount should be
invested today at the interest rate of 5% compounded quarterly to produce the needed amount?
[answer: RM17230.17]

7. A minor investment project has the initial capital outlay of RM 1000. The expected net revenues on the project over the
next four years are RM 400, RM 500, RM 350, and RM 300 respectively. Calculate the net present value for the project
using 12% rate of discount and comment on your result.
[answer: NPV=195.52. The project has positive NPV. The project earns more than the discount rate. It is worthwhile to
invest]

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 AAMS1773 – Quantitative Studies
Chapter 8- Financial Mathematics

8. Walter decides to invest RM 100 at the end of every month into an insurance fund that pay 8% compounded monthly.
After nine months,
(i) How much money does Walter have?
(ii) How much interest is accrued?
[answer: (i) RM924.38 (ii) RM24.38]

9. A firm is considering a project with the estimated cash flows as follows:

Year 0 1 2 3 4
Net cash flow (RM) (20,000) 3,000 5,000 7,000 9,000
Calculate the Net Present Value of the project if the discount rate is 15% per annum and comment on the course of action
to be taken.
[answer: -3862.19 . The project has negative NPV. The project earns less than the discount rate. It is not worthwhile to
invest.]

10. A debt of RM 3,000 will mature in 3 years’ time. Find the present value of this debt, assuming the money is worth 14%
compounded semi-annually.
[answer: RM1999.03]

11. Mrs. Tham set up an investment program with payments of RM 500 at the beginning of each quarter. Find the total amount
of the annuity if she makes payments for 7 years in an account paying 12% compounded quarterly.
[answer: RM22109.43]

12. For the progression 0.1, 0.01, 0.001, ……, find

(i) The first term and the common ratio;
(ii) The sum of the first 8 terms.
[answer: (i) a=0.1 , r=0.1 (ii) 0.1111]

13. How long will it take for a sum of money to double itself at 8.5% simple interest? Round off your answer to the nearest
year.
[answer: 11.76 years = 12 years]

14. As a saving program toward their child’s college education, the parent decide to deposit RM 100 at the end of every month
into a bank account paying interest at the rate of 6% per year compounded monthly. If the savings program began when
the child was 6 years old, how much money would have accumulated by the time the child turns 18?
[answer: RM21015.02]

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Chapter 8- Financial Mathematics

15. After making a down payment of RM 5000 for a MyX car, Daniel paid RM 900 at the end of each month for 5 years with
interest charged at 5% per year compounded monthly on the balance.
(i) What is the total payment of the car in today’s term?
(ii) What is the total interest charge?
[answer: (i) RM52691.64 (ii) RM 6308.36]

16. Find the 13th term in a geometric progression having the first term 𝒂 = 𝟎. 𝟏and the common ratio 𝒓 = 𝟐.
[answer: 409.6]

17. SK I Company is considering a project to purchase some new equipment which would have the following cash flows:
Year Cash flow (RM)
0 (50000)
1 18000
2 25000
3 15000
4 10000
The estimated trade-in value of the equipment in year 4, which is RM 5,000 has not been included in the flows above. The
company has a cost of capital of 16%. Calculate the net present value of the project and advise the company on the
course of action.
[answer: 1990.55. The project has positive NPV. The project earns more than the cost of capital. It is worthwhile to invest]

18. An amount of RM 5000 is invested in a 10-year trust fund that pays 6% annual simple interest. What is the total amount of
the trust fund at the end of 10 years?
[answer: RM8000]

19. 30 monthly advance payments of RM 800 each are made into a mutual fund, which pays a fixed nominal rate 9% p.a.
compounded monthly. How much is in the account at the end of the period?
[answer: RM27003.34]

20. How long would it take for RM 50,000 to become RM 59,500 at 6% per annum simple interest?
[answer: 3.167 years]

21. A furniture store advertises a mattress to be paid at RM 500 deposit and two further equal payments of RM 200 each at the
end of each year. If the interest rate is 8% p.a. compounded yearly, calculate the present value of the mattress.
[answer: RM856.65]

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Chapter 8- Financial Mathematics

22. If the common ratio of a geometric progression (GP) is 4 and the ninth term is 131072, find the first term and the sum of
the first six terms of the GP.
[answer: a=2 , S6=2730]

23. A business project which has an initial cost of RM 15,000 is being considered. The associated revenues over the following
five years are RM 6000, RM 13000, RM 11000, RM 8000 and RM 6500 respectively. Given that the estimated project costs
over the five years are RM 8000, RM 2500, RM 1800, RM 1500 and RM 1000 respectively and the discount rate is 18%,
evaluate the project’s net present value (NPV) and comment on the course of action to be taken.
[answer: 2201.97. The project has positive NPV. The project earns more than the discount rate. It is worthwhile to invest]

24. Two local banks offer the following one-year Certificate of Deposit:
Bank 1: 4.5% per annum compounded monthly;
Bank 2: 5.0% per annum compounded quarterly.
If RM 1,000 is deposited, calculate the interest earned after one year and determine which bank’s Certificate of Deposit
results in more interest.
[answer: RM1045.94 , RM1050.95]

25. A bank pays simple interest at the rate of 3.8% per annum for certain deposits. If Mr. Nakata deposits RM5,000 and makes
no withdrawals for 3 years,
(i) what is the maturity value of his deposit at the end of 3 years?
(ii) What is the total interest earned over 3 years?
[answer: (i) RM5570 (ii) RM560]

26. Jeff invests RM2,000 at the end of each quarter into a trust fund that pays interest of 8% p.a. compounded quarterly. How
much is the investment worth at the end of 3 years?
[answer: RM26824.18]

27. Sakura Department Store had sales of RM300,000 in its first year of operation. If the sales increased by RM50,000 per year
thereafter, find Sakura’s total sales over the first 5 years of operation.
[answer: RM2,000,000]

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Chapter 8- Financial Mathematics

28. The table below shows the cost and the estimated year-end return of an investment project.
End of year Cost (RM) Expected return (RM)
0 16,000 -
1 2,000 3,000
2 - 4,500
3 - 6,000
4 - 8,000
Calculate the net cash flow and hence compute the net present value of the project at discount rate of 8% p.a.
Is t worthwhile to invest in this project? Explain.
[answer: NPV= -572.82. The project has negative NPV. The project earns less than the discount rate. It is not worthwhile to
invest].

29. Mr. Lim deposited RM 10,000 into a fixed deposit account earning 4% per annum compound interest paid quarterly.
Calculate the amount of interest earned by Mr. Lim’s investment in 5 years time.
[answer: RM2201.90]

30. A credit card company charges interest 1.5% per month on outstanding balances. Calculate the actual percentage rate the
company is charging its card members.
[answer: 19.56%]

31. Mr. Tan took a RM 200,000 housing loan from a bank at a compound interest rate of 6% per annum. Repayment is by
monthly installments, the first payment to be paid one month after the disbursement of the loan. If the tenure of the loan
is 10 years on a reducing balance basis, calculate Mr. Tan’s monthly installment to be paid to the bank.
[answer: RM2220.41]

32. The third and the sixth terms of a geometric series are 81 and 2187 respectively. Find the first term and the common ratio
for this series.
[answer: r=3 , a=9]

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 AAMS1773 – Quantitative Studies
Chapter 8- Financial Mathematics

33. Another project undertaken by the same company has the following net cash flows for the next 5 years.
Year Net cash flow (RM’000)
1 (200)
2 300
3 500
4 800
5 800
Presently the project cost is RM 1.2 million and the cost of capital is 6% per annum. Calculate the net present value (NPV)
for the project and advise the management on the viability of the project.
[answer: 529.64. The project has positive NPV. The project earns more than the discount rate. It is worthwhile to invest.]

34. Daniel lends his brother RM3000 for 4 years at a simple interest rate of 3.6% per year. Calculate the total amount his
brother owes after 4 years.
[answer: RM3432]

35. Monesh invest RM5000 in a bank which pays an interest rate of 4% p.a. compounded quarterly. Calculate the amount
Monesh will have after 2 years.
[answer: RM5414.28]

36. After making a down payment of RM10000 for a car, Florence paid RM500 at the end of each month for 7 years with
interest charged at 6% per year compounded monthly.
(i) What is the price of the car?
(ii) What is the total interest charged?
[answer: RM44226.52 (ii) RM7773.48]

37. James agrees to buy a car by making a down payment of RM3000 and installment RM500 per month for 10 years. The
first installment is made one month after the time of purchase. If the interest rate is 6% per year compounded monthly,
(i) Find the actual purchase price of the car; (6 marks)
(ii) Find the total interest paid over the 10 years. (2 marks)
[answer: (i)RM48036.73 (ii) RM14963.27]

38.SeptembRM20000 is invested for three years to earn nominal interest rate of 8%, but interest is being compounded semi-
annually.
(i) How much will the investment be worth at the end of three years? (3 marks)
(ii) What is the effective annual rate (EAR)? (3 marks)
[answer: (i)RM25306.38 (ii) 8.16%]

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Chapter 8- Financial Mathematics

39.AprA company wishes to purchase a new machine in five years time. The company invested a sum of RM1000 into an
account at the beginning of every month for five years at a fixed nominal rate of 7% per annum compounded monthly, what will
be the value of the investments at the end of five years? (4 marks)
[answer: RM72010.53 ]

40. A man invested RM900 at the beginning of every month for three years in an account that pays an interest rate of 6%
per annum compounded monthly. At the end of the three years, the man withdrew RM10000 and no more deposits are made
after that. Find the amount in the account at the end of five years. (7 marks)
[answer: RM 28832.19 ]

41. RM300 was invested at the end of every month in an account that pays an interest rate of 10% p.a. compounded
monthly for 18 months.
(i) Calculate the total amount in the account after 18 months. (4 marks)
(ii) How much interest was earned after 18 months. (3 marks)
[answer: (i) RM5800.04 (ii) RM400.04 ]

42. Mr Koh decides to invest RM6950 for 2 years in a bank account that pays 6% interest compounded semiannually for
his daughter’s college education.
(i) What is the total amount received by Mr Koh after two years? (3 marks)
(ii) What is the interest earned (1 mark)
[answer: (i) RM7822.29 (ii) RM872.29 ]

43. Find the 9th term and the sum of the first 13 terms of the progression 4, 9 , 14, 19, ….. (4 marks)
[answer: 44 , 442 ]

44. A new luxury car costs RM350000. The rate of depreciation is estimated at 10% per year. Find the value of the car at
the end of 9 years. (4 marks)
[answer: RM 135597.17 ]

45. Mr Ang borrow RM100,000 from a bank that charges him interest rate of 9% per annum compounded monthly. If he
repays back at the beginning of each month over 10 years, find his monthly repayment. (6 marks)
[answer: RM 1257.33 ]
46. Suppose RM4500 is invested at an annual interest rate of 5%. Compute the amount accumulated after 5 years if the
interest is
(i) Simple interest, (3 marks)
(ii) Compounded quarterly, (3 marks)
[answer: (i)RM5625 (ii) RM5769.17]

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 AAMS1773 – Quantitative Studies
Chapter 8- Financial Mathematics

47. After making a down payment of RM6000 for a car, Edward paid RM700 at the end of each month for 5 years with
interest charged at 5% per year compounded monthly on the balance.
(i) What is the price of the car? (6 marks)
(ii) What is the total interest charged? (2 marks)
[answer: (i) RM37093.49 (ii) RM43093.49]

48. Melissa wishes to start a child care centre in 3 years time. She estimates that she will need RM30,000 to set up the
business.
(i) What amount should Melissa invest today at an interest rate of 5%p.a. compounded quarterly, to produce the required
amount?
(ii) Find the total interest earned by Melissa in 3 years. (6 marks)
[answer: (i) RM25845.26 (ii) RM4154.74]

49. A man borrows RM50,000 to be repaid quarterly over 6 years. How much would be his quarterly payment if he is
charged a quarterly compound interest rate of 1.2%? You may assume he is paying back at the end of each quarter.
[answer: RM2410.10] (5 marks)

50. A man borrows RM5000 to be repaid semi-annually over 4 years. How much would be his semi-annual payment if he
is charged an interest rate of 1.2% per annum, compounded semi-annually? You may assume that he is paying back at the
beginning of each semi-annual period. (5 marks)
[answer: RM638.16]

51. Melissa wishes to have a down payment of RM40000 to buy a Honda Accord after 4 years. How much should she
invest in a savings account now so that she will have the down payment if the bank pays
(i) 8% interest compounded annually? (2.5 marks)
(ii) 8% interest compounded quarterly? (2.5 marks)
[answer: (i) RM29401.19 (ii) RM29137.83]

52.
Mrs Wong has decided to invest a certain amount of money into a savings account that earns 4% per annum compound
interest. This investment will allow her to withdraw RM6000 at the end of the first year and RM8000 at the end of second year.
(i) Find the amount of money that MRS Wong must invest into the account at the present. (4 marks)
(ii) If the interest earned is compounded quarterly, find the effective annual rate earned by Mrs. Wong’s investment.
(2 marks)
[answer: RM13165.88]

Tutorial 8 (extra) 8