9
Compound Interest: Further
Topics and Applications
Concept Questions (Section 9.1)
1. If FV < PV, the quantity is decreasing in size as time passes. Therefore, the rate of growth
is negative. That is, the value for i is negative.
2. No. You will lose mo
11
Ordinary Annuities:
Periodic Payment, Number of
Payments, and Interest Rate
Point of Interest (Section 11.1)
Reality Check
1. The annual income at age 65 that will have the same purchasing power as
$50,000 at age 20 is
FV PV 1 i n = $50,000 1.03 45 = $
14
Loan Amortization; Mortgages
Point of Interest (Section 14.1)
Just When You Thought You Had It All Figured Out
1. Jeff is missing the point that his average investment (including interest earned) in the GIC
will exceed $10,000, whereas the average pri
15
Bonds and Sinking Funds
Concept Questions (Section 15.2)
1. Four variables affecting a bonds price are:
the face value of the bond
the bonds coupon rate
the prevailing market rate of return on bonds
the time remaining until maturity of the bond
Onl
12
Annuities Due
Point of Interest (Section 12.1)
The Ten-Percent Solution (for Achieving Financial Security)
1. Answering this question requires a trial-and-error approach for various combinations of the
following alternatives:
PMT = $2400 and n = 30 or
13
Annuities: Special Situations
Concept Questions (Section 13.1)
1. The perpetuity has the larger present value. The greater the number of payments in an
annuity, the larger the annuitys present value. Hence, PV(perpetuity) > PV(annuity).
Alternatively,
10
Ordinary Annuities:
Future Value and Present Value
Concept Questions (Section 10.1)
1. The two types of annuities are distinguished by comparing the payment interval to the
compounding interval. If the payment interval equals the compounding interval,
8
Compound Interest: Future
Value and Present Value
Concept Questions (Section 8.1)
1. We compound interest when we convert it to principal and calculate subsequent interest
on both the principal and the converted interest.
2. The compounding period is th
3
Ratios and Proportions
Exercise 3.1
1. 12:64 = 3:16
(each term divided by 4)
2. 56:21 = 8:3
(each term divided by 7)
3. 45:15:30 = 9:3:6
= 3:1:2
(each term divided by 5)
(each term divided by 3)
4. 26:130:65 = 2:10:5 (each term divided by 13)
5. 0.08 :