circuit of interest problems HWISp2018 1 Protected View Wor

circuit of interest problems

HWI-Sp2018 (1) (Protected View) . Word Enable Editing (You may work individually, or in a group of 2. If you work with someone else, submit ONE paper with TWO names on it). 1) If you invest $1,500 today and withdraw $2,500 in 3 years, what interest rate was earned? )Ace Manufacturing is building a new facility that will cost $44M. Ace will borrow S40M from First National Bank and pay the remainder immediately as a down payment. Ace will pay 7% interest, but will make no payments for 4 years at which time the entire amount will be due. How large will Ace\'s payment be? 3) Janie deposits $10,000 in the bank today. Starting 3 years from now, she makes equal withdrawals of $1,000 for 5 years and then withdraws the remaining amount 10 years from now. How much will she be able to withdraw 10 years from now, assuming the bank pays 6 percent compounded annually? 4) Three deposits of $100 each are made at the end of periods 1, 2, and 3. From the money accumulated from these deposits, three equal withdrawals of size SJ are made at the end of periods 6, 7, and 8 Assuming a 10% interest rate, solve for J such that the three withdrawals are equivalent to the three deposits 5) A loan shark lends money on the following terms: If I give you $50 on Monday, you owe me S60 on the following Monday\" (a) What nominal interest rate per year is the loan shark charging? (b) What effective interest rate per year is he charging? 6) A company buys a machine for $12,000, which it agrees to pay for in five equal annual payments, beginning one year after the date of purchase, at an interest rate of 4% per year. Immediately after the second payment, the terms of the agreement are changed to allow the balance due to be paid off in a single payment the next year. What is the final single payment?

Solution

1. F = P(1 + i)ⁿ

2500 = 1500(1 + i)³

(1 + i)³ = 2500 / 1500 = 1.667

1 + i = cube root of 1.667

1 + i = 1.1856

i = 0.1856 or 18.56%

Thus, 18.56% interest is earned