HOME WORK SET # 1

1) A person wishes to make a single deposit P at t=0 into a fund paying 8 %

compounded quarterly such that $ 1000 payments are received at t=1,2,3, and 4
(periods are three-month intervals). The payments are received at the end of 3
months, 6 months, 9 months, and 12 months from t=0. The person would also
like to receive a single payment of $ 5000 3 years from t=0. What single deposit
is required at t=0 to make these (5) withdrawals possible?
(Problem 1 here is same as Problem 1 for In Class Problem Set #1)

2) A man borrows $ 20,000 at 8 % compounded quarterly. He wishes to repay the

money with 10 equal semi-annual installments. What must be the size of the
payment if the first payment is made one year after obtaining the $ 20,000 ?

3) A woman borrows $ 2000 at 8 % per year compounded monthly. She wishes to

repay the loan with 12 end-of-month payments. She wishes to make her first
payment three months after receiving the $ 2000. She also wishes that, after the
first payment, the size of her payments be 10 % greater than the previous
payment. What is the size of her sixth payment ?
(Problem 3 here is same as Problem 4 for In Class Problem Set #1)

4) Monthly deposits of $ 100 are made into an account paying 4 % compounded

quarterly. Ten monthly deposits are made with the first being made one month
from t=0. Determine how much will be accumulated in the account two months
after the last deposit?
(Problem 4 here is same as Problem 2 for In Class Problem Set #1)

5) An individual borrows $ 5000 at an interest rate of 8 % per year compounded

semi-annually and desires to repay the money with five equal end-of-year
payments, with the first payment made two years after receiving the $ 5000. What
should be the size of the annual payment ?

6) Mr. Wright borrows $ 8000 from a bank that charges interest at 6 % compounded
semi-annually. Mr. Wright has to pay the money back with six equal payments.
However, the first payment is to be made immediately on receipt of the $ 8000.
Successive payments are spaced one year part.

a. Determine the size of the equal annual payment.

b. At the time of the fourth payment, suppose Mr. Wright decides to pay off
the loan with one lump sum payment. How much should be paid ?
Include the fourth payment.

7) An individual makes monthly deposits of $ 100 in a savings account that pays

interest at a rate equivalent to 6 % compounded quarterly. If the individual makes
the first deposit one month from t=0, how much money should be in the account
immediately after the sixtieth deposit ?