PLATES CE 443 - ECON

1. The ABC Company deposited $100 000 in a bank account on June 15 and withdrew a total of
$115 000 exactly one year later. Compute: (a) the interest which the ABC Company received
from the $100 000 investment, and (b) the annual interest rate which the ABC Company was
paid.
2. What is the annual rate of simple interest if $265 is earned in four months on an investment Of
$15 OOO?
3. Compare the interest earned from an investment of $1000 for 15 years at 10% per annum
simple interest, with the amount of interest that could be earned if these funds were invested
for 15 years at 10°/o per year, compounded annually.
4. At what annual interest rate is $500 one year ago equivalent to $600 today?
5. Suppose that the interest rate is 10% per year, compounded annually. What is the minimum
amount of money that would have to be invested for a two-year period in order to earn $300
in interest?
6. How long would it take for an investor to double his money at 10% interest per year,
compounded annually?
7. Let the inflation rate be 6% per year. If a person deposits $50 000 in a bank account at 9% per
annum simple interest for 10 years, will this effectively protect the purchasing power of the
original principal?
8. An individual wants to have $2000 at the end of three years. How much would the individual
have to invest at a 10% per year interest rate, compounded annually, in order to obtain a net
of $2000 after paying a $250 early withdrawal fee at the end of the third year?
9. At what rate of interest, compounded annually, will an investment triple itself in (a) 8 years? (b)
10years? (c) 12 years?
10. What amount of money is equivalent to receiving $5000 two years from today, if interest is
compounded quarterly at the rate of 2 ½% per quarter?
11. On the first day of the year, a man deposits $1000 in a bank at 8% per year, compounded
annually. He withdraws $80.00 at the end of the first year, $90.00 at the end of the second year,
and the remaining balance at the end of the third year. (a) How much does he withdraw at the
end of the third year? (6) What is his net cash flow? (c) How much better off, in terms of net cash
flow, would he have been if he had not made the withdrawals at the ends of years one and two?
12. A woman deposits $2000 in a savings account that pays interest at 8% per year, compounded
annually. If all the money is allowed to accumulate, how much will she have at the end of (a)
10 years?
13. How much money must be deposited in a savings account so that $5500 can be withdrawn 12
years hence, if the interest rate is 9% per year, compounded annually, and if all the interest is
allowed to accumulate?
14. Suppose that a person deposits $500 in a savings account at the end of each year, starting now,
for the next 12 years. If the bank pays 8% per year, compounded annually, how much money
will accumulate by the end of the 12-year period?
15. On the day his son was born, a father decided to establish a fund for his son's college education.
The father wants the son to be able to withdraw $4000 from the fund on his 18th birthday, again
on his 19th birthday, again on his 20th birthday, and again on his 21st birthday. If the fund earns
interest at 9% per year, compounded annually, how much should the father deposit at the end of
each year, up through the 17th year?
PLATES CE 443 - ECON

16. How large is the difference between future values with simple and compound interest if N = 20
years, i = 5%, and P = $24? Suppose this is the $24 Peter Minuit paid for the rights to Manhattan
Island in 1626; what are the corresponding values in 2006?
17. If $100 is deposited in a savings account that pays 6% annual interest, what amount has
accumulated by the end of the eighth year? How much of this is interest and how much is
principal?
18. A sum of money invested at 6% interest, compounded monthly, will double in how many
months?
19. Northern Construction and Engineering plans on opening an office in Duluth. Over the next
25 years, the office is expected to have a positive cash flow of $250,000 per year. At an interest
rate of 12%, what is the equivalent present worth (PW)?
20. Studies have concluded that a college degree is a very good investment. Suppose that a college
graduate earns about 75% more money per hour than a highschool graduate. If the lifetime
earnings of a high-school graduate average $1,200,000, what is the expected value of earning a
college degree?
21. A sum of $5000 is invested at an interest rate of 9% per year. Find the time required for the
money to double if the interest is compounded semi-annually.
22. Php 4000 is borrowed for 75 days at 16% per annum simple interest. How much will be due at
the end of 75 days?
23. A man borrowed Php 20,000 from a local commercial bank which has a simple interest of 16%
but the interest is to be deducted from the loan at the time that the money was borrowed and
the loan is payable at the end of 1 year. How much is the actual rate of interest.
24. On his 6th birthday a boy is left an inheritance. The inheritance will be paid in a lumpsum of Php
10,000 on his 21st birthday. What is the present value of the inheritance as the boy’s 6th birthday,
if the interest is compounded annually. Assume i= 4%
25. In year zero, you invest P 10,000 in a 15% security for 5 years. During that time, the average
annual inflation is 6%. How much, in terms of year zero pesos will be in the account at maturity?
26. If Php 500,000 is deposited at a rate of 11.25% compounded monthly, determine the
compounded interest after 7 years and 9 months.
27. A sum of Php 1000 is invested now and left for eight years, at which time the principal is
withdrawn. The interest has accrued is left for another eight years. If the effective annual
interest rate is 5%, what will be the withdrawal amount at the end of the 16th year.
28. An employee at LaserKinetics.com borrows $10,000 on May 1 and must repay a total of
$10,700 exactly 1 year later. Determine the interest amount and the interest rate paid.
29. Last year Jane’s grandmother offered to put enough money into a savings account to generate
$5000 in interest this year to help pay Jane’s expenses at college. (a) Identify the symbols, and
(b) calculate the amount that had to be deposited exactly 1 year ago to earn $5000 in interest
now, if the rate of return is 6% per year.
30. GreenTree Financing lent an engineering company $100,000 to retrofit an environmentally
unfriendly building. The loan is for 3 years at 10% per year simple interest. How much moneywill
the firm repay at the end of 3 years?