Alberto purchased a diamond
ring for his girlfriend today. He will pay
$320 (interest and principal) at the end of each
year for the next 8 years. Assuming that the store
is charging Alberto 6% interest, what was the
purchase price of the gift? (Round your answer to the
nearest dollar)
2.Georgia deposited money in her
retirement account 11 years ago. Today her account
has $8600 in it. Assuming a 4%
interest rate. how much did Georgia deposit
11 years ago? (Round your answer to the
nearest dollar)
3.
Three years ago, Nina borrowed $13600 from me. Today, she will repay the loan, along with interest at 8%. How much am I going to receive? (Round your answer to the nearest dollar)
1. Purchase price of gift shall be present value of cash outflow from Alberto.
Installment = $ 320 at end of each year for 8 year
Interest = 6%
Present value = 320 PVIFA (6%,8) i.e. present value of $320 paid each year for 8 year discounted at 6%
= 320 * Present value annuity factor for 8 year @ 6%.
= 320 * 6.2098
= $ 1,987
Purchase price of gift = $ 1,987
2. The deposited money by Georgia shall be the present value of $ 8,600, 11 years ago discounted @ 4%
Deposited money = 8,600 PVAFA (4%,11)
= 8,600 * Present value factor for 11 year @ 4%
= 8,600 * 0.6496
= $ 5,586.40
3. The received amount today shall be the Principal + Interest.
Interest shall be assumed to be compounding per year.
Received amount = $ 13,600 *1.08 *1.08*1.08
= $ 17,132
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