The document contains 1070 exercises focused on the mathematics of finance, covering topics such as present and future value, amortization of loans, annuities, savings balances, targeted savings, and loans and mortgages. Each section includes various problems with specific scenarios and calculations related to interest rates, payments, and investment growth. The exercises aim to enhance understanding of financial concepts through practical applications and problem-solving.
The document contains 1070 exercises focused on the mathematics of finance, covering topics such as present and future value, amortization of loans, annuities, savings balances, targeted savings, and loans and mortgages. Each section includes various problems with specific scenarios and calculations related to interest rates, payments, and investment growth. The exercises aim to enhance understanding of financial concepts through practical applications and problem-solving.
The document contains 1070 exercises focused on the mathematics of finance, covering topics such as present and future value, amortization of loans, annuities, savings balances, targeted savings, and loans and mortgages. Each section includes various problems with specific scenarios and calculations related to interest rates, payments, and investment growth. The exercises aim to enhance understanding of financial concepts through practical applications and problem-solving.
The document contains 1070 exercises focused on the mathematics of finance, covering topics such as present and future value, amortization of loans, annuities, savings balances, targeted savings, and loans and mortgages. Each section includes various problems with specific scenarios and calculations related to interest rates, payments, and investment growth. The exercises aim to enhance understanding of financial concepts through practical applications and problem-solving.
Download as DOCX, PDF, TXT or read online from Scribd
Download as docx, pdf, or txt
You are on page 1/ 15
1070 exercises on math of finances
1.PROBLEMS on present and future value
1.1. How much should be the payment for the 5 years old child in a trust fund so that at age of 16 the child will receive $22,000.00, at the annual interest rate of 6% compounded semi-annually?
1.2. If the interest on the outstanding balance of a credit card account is
charged 1.75% per month, what is the effective (annual) rate of interest (yield)?
1.3. Crazy Davy’s Stereos offers a stereo system for $599 and offers one year with no interest and no payments. The current interest rates are 10.5% compounded monthly. You want the stereo, but you want to pay for it now, with cash. What should you offer them?
1.4. You pay $1,000 now, and $2,000 in 3 years to a saving account at 5% compounded quarterly. How much will you have in that account 5 years from now?
1.5. A consumer buys goods in store worth $1,500. He pays $300 down payment and will pay $500 at the end of 6 months. He will finally pay off his debt one year after he purchased the goods. If the store charges an interest of 18%, compounded monthly, on unpaid balance, what final payment will be necessary at the end of one year? (Ans. $888.02)
Page 1 of 15 1.6. A debt of $550 due in 4 years (from now) and $500 due in 5 years is to be repaid with a single payment now. How much is this payment if an interest rate of 10% is compounded bi- weekly. (Ans. $672.52)
1.7. Do the question 6. if the same debt is to be repaid one year from now. (Ans. $743.10)
1.8. Compound Interest. Effective Rate. Equations of Values
1.9. Fred has a debt of $10,000 on his mortgage due today. He arranges to pay $2,000 cash today and two equal payments in one and three years. If the bank is using 8% interest rate compounded semi-annually, how much will each payment be? (Ans. $4,665.07)
1.10.A person can buy a lot for $13,000 cash outright now, or pay $6,000 down, $5,000 in 2 years and $7,000 in 5 years. Which option is better if money can be invested at 1.10.1. 18% compounded monthly; 1.10.2. 12% compounded quarterly for the first 3 years and 14% compounded quarterly for the remaining 2 years? (Ans. a) payment option is better, P=$12,362.79; b) cash option is better, P=$13.675.50)
1.11.A company can buy a lot for $25,000 cash now or with 3 payments: $8,000 in 2 years, $10,000 in 4 years and $16,000 in 6 years. If the company can invest the money at an interest rate of 5%, compounded semi-annually, what should the company do in order to get a better deal? (Ans. cash option is better since the present value of the 3 payments is $27,351.97)
2. The principle of amortization of loans
Page 2 of 15 2.1. Find two alternatives
2.2. Two alternatives must have the same present value
2.3. Hence the amount of the loan has to be equal to the present value of all the payments
3.Annuities
3.1. Sinking Fund: A machine that costs $7,000 is to be replaced in 10
years by a new one. The old machine at that time would be worth $700. How much should be periodic payments so that there will be enough money to buy a new machine (at the same price) if equal payments are made at the end of each quarter of a year at the interest rate of 8% compounded quarterly? (Ans. $104.30)
3.2. Twins graduate from college together and start their careers. Twin 1 invests $2,000 at the end of each year for 8 years in an account that earns 10% compounded annually. After the initial 8 years, no additional contributions are made, but the investment continues to earn 10%, compounded annually. Twin 2 invests no money for 8 first years, but then contributes $2,000 at the d of each year for a period of 36 years (to age of 65) to an account that pays 10%, compounded annually. How much money does each twin have at the age of 65? (Ans. Twin 1:$707,028, Twin 2: $598,254)
3.3. Mr. Jones deposited $800 at the end of each year into a RRSP investment fund for the last 10 years. His investment earned 10% compounded annually for the first 7 years and 9% compounded annually for the last 3 years. How much money will he have in his account 10 years Page 3 of 15 after his last deposit if the interest rate remains at 9% compounded annually? (Ans. $29,477.01)
3.4. A company can buy a lot for $25,000 cash now or with 3 payments: $8,000 in 2 years, $10,000 in 4 years and $16,000 in 6 years. If the company can invest the money at an interest rate of 5%, compounded semi-annually, what should the company do in order to get a better deal?
3.5. Sinking Fund: A machine that costs $7,000 is to be replaced in 10
years by a new one. The old machine at that time would be worth $700. How much should be periodic payments so that there will be enough money to buy a new machine (at the same price) if equal payments are made at the end of each quarter of a year at the interest rate of 8% compounded quarterly?
3.6. Twins graduate from college together and start their careers. Twin 1 invests $2,000 at the end of each year for 8 years in an account that earns 10% compounded annually. After the initial 8 years, no additional contributions are made, but the investment continues to earn 10%, compounded annually. Twin 2 invests no money for 8 first years, but then contributes $2,000 at the end of each year for a period of 36 years (to age of 65) to an account that pays 10%, compounded annually. How much money does each twin have at the age of 65?
3.7. Mr. Jones deposited $800 at the end of each year into a RRSP investment fund for the last 10 years. His investment earned 10% compounded annually for the first 7 years and 9% compounded annually for the last 3 years. How much money will he have in his account 10 years after his last deposit if the interest rate remains at 9% compounded annually? Page 4 of 15 3.8. How much money is needed in order to withdraw $60 per month for 3 years if the interest rate is 6% compounded monthly during the first year and 6.5% compounded monthly during the next 2 years?
3.9. For an interest rate of 6% compounded monthly, find:
3.9.1. The amount of money needed on the account in order to withdraw $50 at the end of each month for the first 6 months and $75 thereafter, at the end of each month, for another two years. 3.9.2. The amount of money that will be on the account if $50 is deposited at the end of each month for the first 6 months and $75 thereafter, at the end of each month, for another two years.
3.10.Mrs. Smith signed a contract that calls for payments of $150 a month for 5 years. If money is worth 15% compounded monthly answer the following: 3.10.1. What is the present (cash) value of the contract? 3.10.2. If Mrs. Smith missed making the first 6 payments, what must she pay at the time of the 7th payment to be fully up to date?
3.11.A debt of $10,000 is being repaid by 10 equal semi-annual
payments with the first payment being 6 months from now. Interest is at a rate of 8% compounded semi-annually. 3.11.1. Find the payment amount. 3.11.2. However, after 1 year, the bank gets mean and increases the rate to 10% compounded semi-annually. If the debt is to be paid off on the original date agreed upon, find the new payment amount for the last 4 years of the loan.
3.12.A mortgage, for a house, of $100,000 will be paid over 30 years with an annual interest rate of 7.8%. Page 5 of 15 3.12.1. What are the bi-weekly payments? 3.12.2. How much interest will be paid during the life time of this mortgage? 3.12.3. If the bi-weekly payments are $400 when will the mortgage be paid off? 3.12.4. How much in interest will be saved with $400 bi-weekly payments? 3.12.5. Calculate the amortization schedule for the first 8 payments of this mortgage if the payments are as in part a).
Perio O/S Interest Payme Principa Total
d Balance nt l Principal For @ Period @ End Paid Repaid Beginning 1 2 3 4 5 6
3.13.A loan of $2,000 (now) is paid off in 4 years at 12% compounded
monthly. Find: 3.13.1. The monthly payments. 3.13.2. The outstanding balance after 1st year. 3.13.3. The total amount paid at the end of 3 years. 3.13.4. The outstanding balance after 3 years. 3.13.5. The interest paid for the first 3 years.
Page 6 of 15 3.13.6. The interest paid during the 4th year. 3.13.7. The total interest paid on this loan.
4. Savings balance exercises
4.1. $150 is deposited in a retirement account every two weeks. The
investment is estimated to earn 5% interest compounded every two weeks. Compute the balance of the account after: a) 10 years b) 30 years
4.2. $300 is deposited in a retirement account every two weeks. The
investment is estimated to earn 7% compounded every two weeks. Compute the balance of the account after: a) 10 years b) 30 years
4.3. $200 is deposited in a retirement account every twice a month. The
investment is estimated to earn 7.5% interest compounded twice a month. Compute the balance of the account after 30 years.
4.4. $300 is deposited in a retirement account every twice a month. The
investment is estimated to earn 9.5% interest compounded twice a month. Compute the balance of the account after 40 years
5. Savings balance with an initial deposit
5.1. $100 is deposited in a retirement account every two weeks. The
account already has a balance of $10,000. The investment is estimated to earn 8% interest compounded every two weeks. Compute the balance of the account after 30 years.
Page 7 of 15 5.2. $250 is deposited in a retirement account every two weeks. The account already has a balance of $25,000. The investment is estimated to earn 9% interest compounded every two weeks. Compute the balance of the account after 33 years.
5.3. $800 is deposited in a retirement account every month. The account
already has a balance ohnf $50,000. The investment is estimated to earn 7% interest compounded monthly. Compute the balance of the account after 15 years.
5.4. $1000 is deposited in a retirement account every month. The account
already has a balance of $100,000. The investment is estimated to earn 10% interest compounded monthly. Compute the balance of the account after 20 years.
6. Targeted Savings with an initial investment
6.1. Jerry wants to have $1,250,000 saved up when he retires in 30 years.
Jerry already has $40,000 saved up. He plans to have money put into a retirement account every two weeks with each paycheck. He hopes his investments to earn 9% interest compounded every two weeks. How much does each deposit need to be to reach his goal?
6.2. Sue wants to have $750,000 saved up when he retires in 35 years. Sue already has $20,000 saved up. She plans to have money put into a retirement account every two weeks with each paycheck. She hopes his investments to earn 7% interest compounded every two weeks. How much does each deposit need to be to reach her goal?
Page 8 of 15 6.3. Jerry wants to have $250,000 saved up when he retires in 10 years. Jerry already has $5,000 saved up. He plans to have money put into a retirement account twice a month with each paycheck. He hopes for his investments to earn 9% interest compounded twice a month. How much does each deposit need to be to reach his goal?
6.4. Shelly wants to have $500,000 saved up when he retires in 15 years.
Shelly already has $75,000 saved up. She plans to have money put into a retirement account every two weeks with each paycheck. She hopes his investments to earn 8% interest compounded every two weeks. How much does each deposit needs to be to reach her goal?
7. Targeted Savings
7.1. Jerry wants to have $1,250,000 saved up when he retires in 30 years.
Jerry does not have any money saved up so far. He plans to have money put into a retirement account every two weeks with each paycheck. He hopes his investments to earn 9% interest compounded every two weeks. How much does each deposit need to be to reach his goal?
7.2. Sue wants to have $750,000 saved up when she retires in 35 years. Sue does not have any money saved up so far. She plans to have money put into a retirement account every two weeks with each paycheck. She hopes his investments to earn 7% interest compounded every two weeks. How much does each deposit need to be to reach her goal?
7.3. Jerry wants to have $250,000 saved up when he retires in 10 years.
Jerry does not have any money saved up so far. He plans to have money put into a retirement account twice a month with each paycheck. He hopes for
Page 9 of 15 his investments to earn 9% interest compounded twice a month. How much does each deposit need to be to reach his goal?
7.4. Shelly wants to have $500,000 saved up when she retires in 15 years. Shelly does not have any money saved up so far. She plans to have money put into a retirement account every two weeks with each paycheck. She hopes his investments to earn 8% interest compounded every two weeks. How much does each deposit need to be to reach her goal?
8.Loans and Mortgages. Amortization Schedules
8.1. A mortgage, for a house, of $100,000 will be paid over 30 years with an annual interest rate of 7.8%. 8.1.1. What are the bi-weekly payments? Ans: $332.10 8.1.2. How much interest will be paid during the life time of this mortgage? Ans $159,038.00 8.1.3. If the bi-weekly payments are $400 when will the mortgage be paid off? Ans: 463 periods 17.8 years 8.1.4. How much in interest will be saved with $400 bi-weekly payments? Ans: $73,838.00 8.1.5. Calculate the amortization schedule for the first 8 payments of this mortgage if the payments are as in part a).
9. How big a loan may be taken? exercises
9.1. Sarah can afford $400 per month for a car payment. What size of a car loan can she take if he plans to finance at: a) 6 years (72 months) at an
Page 10 of 15 interest rate of 2.9% compounded monthly? b) 7 years (84 months) years at an interest rate of 2.9% compounded monthly?
9.2. Kris can afford $475 per month for a car payment. What size of a car loan can she take if he plans to finance at: a) 6 years (72 months) at an interest rate of 6% compounded monthly? b) 7 years (84 months) years at an interest rate of 6% compounded monthly?
9.3. Lisa can afford $300 per month for a truck payment. What size of a truck loan can she take if he plans to finance at: a) 6 years (72 months) at an interest rate of 2.9% compounded monthly? b) 7 years (84 months) years at an interest rate of 2.9% compounded monthly?
9.4. Jack and Jill can afford $1200 per month for a house payment. What size of a home loan can the take if they plan to finance for 30 years (360 months) at 4.5% compounded monthly? (This ignores property taxes and insurance that will likely be part of the house payment. I don’t want to over- complicate this problem.)
9.5. Herman and Lilly can afford $900 per month for a house payment. What size of a home loan can the take if they plan to finance for 30 years (360 months) at 4.25% compounded monthly?
9.6. Jethro and Ellie can afford $750 per month for a house payment. What size of a home loan can the take if they plan to finance for 30 years (360 months) at 5.25% compounded monthly?
10. Monthly payments exercises
Page 11 of 15 10.1.A new car is purchased and a $20,000 loan is taken. The loan is for 5 years (60 months) and the interest rate is 7.9% compounded monthly. What is the monthly payment?
10.2.A new car is purchased and a $30,000 loan is taken. The loan is for 7 years (84 months) and the interest rate is 2.9% compounded monthly. What is the monthly payment?
10.3.A used car is purchased and a $15,000 loan is taken. The loan is for 4 years (48 months) and the interest rate is 5.9% compounded monthly. What is the monthly payment?
10.4.A used car is purchased and a $10,000 loan is taken. The loan is for 3 years (36 months) and the interest rate is 8% compounded monthly. What is the monthly payment?
10.5.$150,000 is borrowed for the purchase of a new home. The loan is for 30 years (360 payments) and the interest rate is 4.5% compounded monthly. What is the monthly payment? (We are ignoring property taxes and insurance.)
10.6.$200,000 is borrowed for the purchase of a new home. The loan is for 30 years (360 payments) and the interest rate is 4.5% compounded monthly. What is the monthly payment? (We are ignoring property taxes and insurance.)
11. Cost of a loan exercises
Page 12 of 15 11.1.A new car is purchased and a $30,000 loan is taken. The loan is for 6 years (72 months) and the interest rate is 5.9% compounded monthly. a) What is the monthly payment? b) How much interest will be paid over the term of the loan?
11.2.A new car is purchased and a $20,000 loan is taken. The loan is for 7 years (84 months) and the interest rate is 6% compounded monthly. a) What is the monthly payment? b) How much interest will be paid over the term of the loan?
11.3.A used car is purchased and a $10,000 loan is taken. The loan is for 3 years (36 months) and the interest rate is 6% compounded monthly. a) What is the monthly payment? b) How much interest will be paid over the term of the loan?
11.4.A used car is purchased and a $18,000 loan is taken. The loan is for 5 years (60 months) and the interest rate is 9% compounded monthly. a) What is the monthly payment? b) How much interest will be paid over the term of the loan?
11.5.$200,000 is borrowed for the purchase of a new home. The loan is for 30 years (360 payments) and the interest rate is 4% compounded monthly. a) What is the monthly payment? b) How much interest will be paid over the term of the loan?
11.6.$250,000 is borrowed for the purchase of a new home. The loan is for 30 years (360 payments) and the interest rate is 5.25% compounded monthly. a) What is the monthly payment? b) How much interest will be paid over the term of the loan?
12. How long until a loan is paid exercises
Page 13 of 15 12.1.$25,000 is still owed on a car loan. The loan has an interest rate of 7.9% compounded monthly and calls for monthly payments. The current payment is $450 per month. How long will it take to pay the loan off?
12.2.$15,500 is still owed on a car loan. The loan has an interest rate of 6% compounded monthly and calls for monthly payments. The current payment is $300 per month. How long will it take to pay the loan off?
12.3.$8,500 is still owed on a car loan. The loan has an interest rate of 4% compounded monthly and calls for monthly payments. The current payment is $250 per month. How long will it take to pay the loan off?
12.4.$150,000 is still owed on a home loan. The loan has an interest rate of 4.5% compounded monthly and calls for monthly payments. The current payment is $1,100 per month. How long will it take to pay the loan off?
12.5.$200,000 is still owed on a home loan. The loan has an interest rate of 6.25% compounded monthly and calls for monthly payments. The current payment is $1200 per month. How long will it take to pay the loan off?
13. Outstanding amount exercises
13.1.A new car is purchased and a $20,000 loan is taken. The loan is for 5 years (60 months) and the interest rate is 7.9% compounded monthly. What is the balance after 3 years?
13.2.A new car is purchased and a $30,000 loan is taken. The loan is for 7 years (84 months) and the interest rate is 2.9% compounded monthly. What is the balance after 3 years?
Page 14 of 15 13.3.A used car is purchased and a $15,000 loan is taken. The loan is for 4 years (48 months) and the interest rate is 5.9% compounded monthly. What is the balance after 1 year?
13.4.A used car is purchased and a $10,000 loan is taken. The loan is for 3 years (36 months) and the interest rate is 8% compounded monthly. What is the balance after 1 year?
13.5.$150,000 is borrowed for the purchase of a new home. The loan is for 30 years (360 payments) and the interest rate is 4.5% compounded monthly. What is the balance after 15 years?
13.6.$200,000 is borrowed for the purchase of a new home. The loan is for 30 years (360 payments) and the interest rate is 4.5% compounded monthly. What is the balance after 10 years?
13.7.A new car is purchased and a $30,000 loan is taken. The loan is for 7 years (84 months) and the interest rate is 2.9% compounded monthly. What is the balance after 3 years?
13.8.A new car is purchased and a $20,000 loan is taken. The loan is for 5 years (60 months) and the interest rate is 7.9% compounded monthly. What is the balance after 3 years?
