ENG 106
Homework #4
Winter 2012
Due:
Wed, Feb 8, 3 pm, homework box
4.7 An annuity provides for 10 consecutive endofyear payments of $8,500. The average general inflation rate is
estimated to be 5% annually, and the market interest rate is 12% annually. What is the annuity worth in terms of a
single equivalent amount of today’s dollars?
4.10 The purchase of a car requires a $12,000 loan to be repaid in monthly installments for four years at 12%
interest compounded monthly. If the general inflation rate is 6% compounded monthly, find the actual and constant
dollar value of the 20
th
payment of this loan.
4.a
Market interest rate i=9%/yr, and inflation rate f=3.8%/yr. Begin with an equalpayment series in constant
(yearzero) dollars of A’ = $1000 at the end of each of three years beginning at EOY 1. Convert this to an actual
dollar equalpayment series of A over the same three years, i.e., determine the amount A. (answer: $1076.)
4.15 Suppose that you borrow $20,000 at 12% compounded monthly over five years.
Knowing that the 12%
represents the market interest rate, you compute the monthly payment in actual dollars as $444.90.
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 Spring '12
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 Time Value Of Money, Net Present Value

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