1 / 7

Chapter 12 Problems and Solutions

12-13 - Compound Interest 12-15 - Compound Interest 12-16 - Compound Interest 12-27 - Compound Interest, Present Value Click here to view all problems and solutions. Chapter 12 Problems and Solutions. Problem 12-13.

moeshe
Télécharger la présentation

Chapter 12 Problems and Solutions

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. 12-13 - Compound Interest 12-15 - Compound Interest 12-16 - Compound Interest 12-27 - Compound Interest, Present Value Click here to view all problems and solutions Chapter 12 Problems and Solutions

  2. Problem 12-13 Lynn Ally, owner of a local Subway shop, loaned $40,000 to Pete Hall to help him open a Subway franchise. Pete plans to repay Lynn at the end of 8 years with 6% interest compounded semiannually. How much will Lynn receive at the end of 8 years? Step 1: Calculate the number of periods. 8 years x 2 periods per year = 16 periods Step 2: Calculate the interest rate per period. 6% = 3% 2 Step 3: Look up the table factor on the future value of $1 table. 1.6047 is at the intersection of 16 periods @ 3% Step 4: Calculate the future value Lynn will receive. $40,000 x 1.6047 = $64,188

  3. Problem 12-15 Melvin Indecision has difficulty deciding whether to put his savings in Mystic Bank or Four Rivers Bank. Mystic offers 10% interest compounded semiannually. Four Rivers offers 8% interest compounded quarterly. Melvin has $10,000 to invest. He expects to withdraw the money at the end of 4 years. Which bank gives Melvin the better deal? Step 1: Calculate the number of periods for both banks. Mystic 4 years x 2 periods per year = 8 periods Four Rivers 4 years x 4 periods per year = 16 periods Step 2: Calculate the interest rate per period for both banks. Mystic 10% = 5% 2 Four Rivers 8% = 2% 4 Step 3: Look up the table factor on the future value of $1 table. Mystic 1.4775 is at the intersection of 8 periods @ 5% Four Rivers 1.3728 is at the intersection of 16 periods @ 2%

  4. Problem 12-15 continued Step 4: Calculate the future value at both banks. Mystic $10,000 x 1.4775 = $14,775 Four Rivers $10,000 x 1.3728 = $13,728 Step 5: Calculate interest earned at both banks. Mystic $14,775 – 10,000 = $4,775 Four Rivers $13,728 – 10,000 = $3,728 Step 6: Choose the bank with the greatest interest earned. Mystic Bank has the better deal by $1,047 ($4,775 - $3,728).

  5. Problem 12-16 Lee Holmes deposited $15,000 in a new savings account at 9% interest compounded semiannually. At the beginning of year 4, Lee deposits an additional $40,000 at 9% compounded semiannually. At the end of 6 years, what is the balance in Lee’s account? Step 1: Calculate the number of periods. 3 years x 2 periods per year = 6 periods Step 2: Calculate the interest rate per period. 9% = 4 ½ % 2 Step 3: Look up the table factor on the future value of $1 table. 1.3023 is at the intersection of 6 periods @ 4 ½ % Step 4: Calculate the future value. $15,000 x 1.3023 = $19,534.50

  6. Problem 12-16 continued Step 5: Add the $40,000 deposit to the future value amount. $19,534.50 + 40,000 = $59,534.50 Step 6: Calculate the number of periods. 3 years x 2 periods per year = 6 periods Step 7: Calculate the interest rate per period. 9% = 4 ½ % 2 Step 8: Look up the table factor on the future value of $1 table. 1.3023 is at the intersection of 6 periods @ 4 ½ % Step 9: Calculate the future value. $59,534.50 x 1.3023 = $77,531.78

  7. Problem 12-27 Paul Havlik promised his grandson Jamie that he would give him $6,000 8 years from today for graduating from high school. Assume money is worth 6% interest compounded semiannually. What is the present value of this $6,000? Step 1: Calculate the number of periods. 8 years x 2 periods per year = 16 periods Step 2: Calculate the interest rate per period. 6% = 3% 2 Step 3: Look up the table factor on the present value of $1 table. .6232 is at the intersection of 16 periods @ 3% Step 4: Calculate the present value of this investment. $6,000 x .6232 = $3,739.20

More Related