Question

Q.1 You deposit $1,000 in your bank account. If the bank pays 4% compounded interest, how much will you accumulate in your account after 10 years? What if the bank pays interst on semi-annual basis?

Q.2 If you earn 6% per year on your bank account, how long will it take an account with $100 to double to $200?

Q.3 Your landscapping company can lease a truck for $8,000 a year(paid at year-end) for six years. It can instead buy the truck for $40,000. The truck will be valueless after six years. If the interest rate you company can earn on its funds is 7%, is it cheaper to buy or lease?

Q.4 If you borrow $1,000 and agree to repay the loan in five equal annual payments at an interest rate of 12%, what will your payment be?

Q.5 You have borrowed $24,000 and agreed to pay back the loan with monthly payments of $200. If the interest rate is 12%,how long will it take you to pay back the loan?

Answer 1

Answer of Question 1:

Present Value = $1,000
Annual Interest Rate, r = 4%
Time, n = 10 Years

Future Value = Present Value * (1+r)^n
Future Value = $1,000 * (1+0.04)^10
Future Value = $1,000 * 1.48024
Future Value = $1,480.24

On Semi-Annual Basis:

Present Value = $1,000

Annual Interest Rate = 4%
Semiannual Interest Rate, r = 2%

Semmiannual Period, n = 10 year*2 = 20 year

Future Value = Present Value * (1+r)^n
Future Value = $1,000 * (1 +0.02)^20
Future Value = $1,000 * 1.48595
Future Value = $1,485.95