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Unformatted text preview: ‘yﬂ Ln/aNﬂUi/ELV ay to build a new factory. Thereafter, Wang expects to
receive the following profitthe factory: WWW «MM»: mm“ “M”
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2 million 5‘2“
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4 million The factory will be obsolete and torn down at the end of 6 years. Determine the net present value of this project at an annual effective interest rate of 7%. 772 €45 c003
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a 2. While Audrey is in college, her grandparents are depositing 300 at the beginning of each month
into an account. They will make a total of 48 payments. The account earns an annual effectiva interest rate of 12%. How much will Audrey have in the account at the end of 48 months? 3. Liyana will pay 4000 to each of Hamizah and Mohd today.
Mohd will pay 5000 to each of Hamizah and Liyana at the end of 2 years. Mohd at Hamizah will payo Liyana at the and OM years. Hamizah will also .. the and OM years. 900 }— é 00$ : 0053 Using the bottom line approach, determine Hamizah’s annual yield rate on this arrangement. Hemmw +4600 Get ‘53‘0
+9300 07‘? 17:2“ a. HJDOO 637L titq’ 4. Mike bought a new high definition television for 2000. Mike paid for the television using a 15  month loan with an interest rate oiﬁ compounded monthly. ‘ in)
* l/ Mike forgot to make the 8th payment on the loan. Determine Mike’s outstanding loan balance at the end of the 12th month. Pléib All/5, L3 5. Lauren loans Jason 1000. Jason repays the loanwith annual payments of 400 at the end of each
year for the next three years. Lauren reinvests Jason payments at an annual effective rate of r. Lauren’s return on the loan when reinvestment is taken into account is 8%. Determine r. y .
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4‘ 0 w, WWW ‘7 (A Q§Zb’% 7. Mihai is receiving an annual annuity payment for the next 25 years. The first payment under
the annuity is payable at the end of one year and is for 1000. Each payment thereafter is 107%
of the prior payment. In other words, the first payment is 1000, the second payment is y l
1000(1.o7), the third payment is 1000(1.o72), etc. Calculate the present value of this annuity at an annual effective interest rate of 5%. 3%
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“3 ﬂém "5 ieﬁtaf Miss?” 8. Candace invest 100 in an account earning an annual effective interest rate of 10%.
Y is the actual number of years that it will take for Candace to have 400 in her account. ‘ R is the estimated number of years that it will take for Ca ndace’s account to reach 400 using
the Rule of 72. Calculate Y—R.
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y‘.’ R: WALK W‘q Oediy‘ 9. Amanda has 1,000,000 which she uses to purchase an increasing annuity. The annuity pays P at
the end of the first month, 2P at the end of the second month, 3P at the end of the third month,
etc. Payments will be made for 10 years. . 1 l a; i i . 7‘ 7 L
The payments are determined using an interest rate of€2% compounded monthly. >¢ Determine P. (7 2/? 'TP
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 11. You are given 5, = 0.04+ 0.00312. Param is going to receive 9000 at the end of 10 years. Calculate the value of this payment today. 12. Cindy is the beneficiary of a trust fund. Under the trust fund, she will receive a perpetuity which
' pays 1000 at the beginning of the first year, 1500 at the beginning of the second year, 2000 at
the beginning of the third year, etc. with each payment increasing by 500 over the prior
payment. Determine the present value of Cindy’s perpetuity at an annuai effective interest rate of 4%. )WiW wiw “ mt?“
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0 223% MM i Roost it W 6 5 13. Austin has inVested 1000 at a simple interest rate of s. In the 10th year, the effective interest
rate earned by Austin is 1/34. Calculate the amount of money that Austin has at the end of 20 years. l/er waxle NW
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«3—; :7“: 0M 14. Chen invests 1000 in an account for nine years. During the first two years, Chen earns a quarterly effective interest rate of 4%. During the next three years, Chen earns do” = 0.12.
During the last four years, Chen earns an interest rate of 5% compounded continuously. How much does Chen have at the end of nine years? 15. A gallon of gasoline costs 3.00 today. Jon has enough money to buy 100 gallons today. Instead of buying gasoline, Jon decides to invest his money at an annual interest rate of 6%. If the annual rate of inflation over the next five years is 3.5%, calculate how many gallons of gasoline Jon will be able to buy at the end of five years. jab/l Has (3)000) c: 5305:) . 297’ {NE at: 5‘ Yam; Jm will lam/a éﬂuqm; he WM ﬂare/llama. gilt? g New; A; 0) 41977 g. M ‘ 5.5295 M ii
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This note was uploaded on 03/13/2012 for the course MA 373 taught by Professor Staff during the Fall '08 term at Purdue UniversityWest Lafayette.
 Fall '08
 Staff

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