Assuming an interest rate of 8% compounded annually, answer the following questions: (a) How much

money can be loaned now if $6,000 is to be repaid at the end of five years? (b) How much money will
be required in four years in order to repay a $15,000 loan borrowed now?
You bought 200 shares of Motorola stock at $3,800 on December 31, 2000. Your intention is to keep
the stock until it doubles in value. If you expect 15% annual growth for Motorola stock, how many
years do you expect to hold onto the stock?
Wilson Technology, a growing machine shop, wishes to set aside money now to invest over the next
four years in automating its customer service department. The company can earn 10% on a lump sum
deposited now, and it wishes to withdraw the money in the following increments:
Year 1: $25,000 to purchase a computer and database software designed for customer service
use;
Year 2: $3,000 to purchase additional hardware to accommodate anticipated growth in use of
the system;
Year 3: No expenses: and
Year 4: $5,000 to purchase software upgrades.
How much money must be deposited now in order to cover the anticipated payments over the next
four years?
A local newspaper headline blared, “Bo Smith Signs for $30 Million”. The article revealed that, on
April 1, 2002, Bo Smith, the former record breaking running back from Football University, signed a
$30 million package with the Nebraska Lions. The terms of the contract were $3 million immediately,
$ 2.4 million per year for first five years (with the first payment after one year), and $3 million per
year for the next five years (with the first payment at the end of year six). If the interest rate is 8%
compounded annually, what is Bo’s contract worth at the time of contract signing?
You are preparing to buy a vacation home eight years from now. The home will cost $50,000 at that
time. You plan on saving three deposits at an interest rate of 10%:
Deposit 1: Deposit $
Deposit 2: Deposit $12,000 two years from now
Deposit 3: Deposit $X five years from now.
How much do you need to invest in year five to ensure that you have the necessary funds to buy the
vacation home at the end of year eight?

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How much money should you be willing to pay now for a guaranteed $600 per year for 9 years starting
next year, at a rate of return of 16% per year?

A micro-brewery is considering the installation of a newly designed boiler system that burns the dried,
spent malt and barley grains from the brewing process. The boiler will produce a process steam that
powers the majority of the brewer’s energy operations, saving $450,000 per year over the boiler’s
expected life of 10 years. If the interest rate is 12% per year, how much money can the brewery afford
to invest in the new boiler system?
Suppose that a father, on the day his son is born, wishes to determine what lump amount would have
to be paid into an account bearing interest of 12% per year to provide withdrawals of $2,000 on each
of the sons’s 18th, 19th, 20th, and 21st birthdays.

When you take your first job, you decide to start saving right away for your retirement. You put $5,000
per year into the company’s 401 (k) plan, which averages 8% interest per year. Five years later, you
move to another job and start a new 401 (k) plan. You never get around to merging the funds in the
two plans. If the first plan continued to earn interest at the rate of 8% per year for 35 years after you
stopped making contributions, how much is the account worth?
A man wants to deposit in a savings bank a certain amount of money annually by the end of the current
year and for a total of 30 years. How much should be deposit annually so that he will have P 30,000
by the end of 30 years if the interest rate is 10%?

A savings bank is offering house mortgage loans at 8.5 % interest compounded monthly. What will be
the monthly payment for a loan of P 43,000 for a 30-year mortgage if the first installment is due after
one month from the date of signing the deed? What will be the effective annual interest rate?
You borrow $15,000 from your credit union to purchase a used car. The interest rate on your loan is
0.25% per month and you will make a total of 36 monthly payments. What is your monthly payment?

Your company has a $100,000 loan for a new security system it just bought. The annual payment is
$8,880 and the interest rate is 8% per year for 30 years. Your company decides that it can afford to
pay $10,000 per year. After how many payments (years) will the loan be paid off?
What is the future worth of a series of equal year-end deposits of $5,000 for 10 years in a savings
account that earns 8% annual compound interest if (a) all deposits are made at the end of each year?
(b) all deposits are made at the beginning of each year?

What equal annual series of payments must be paid into a sinking fund in order to accumulate the
following amounts?
a) $12,000 in 13 years at 4% compounded annually
b) $25,000 in eight years at 7% compounded annually
c) $15,000 in 25 years at 9% compounded annually
d) $8,000 in eight years at 8.85% compounded annually