Question

Anna has $18,000 to invest. She requires $30,000 for a down payment for a house. If she is able to invest at 6%, how many years (the nearest year) will it be before she will accumulate the desired balance?

		6 years.
		7 years.
		8 years.
		9 years

Ziggy is considering purchasing a new car. The cash purchase price for the car is $43,100. What is the annual interest rate (the nearest percent) if Ziggy is required to make annual payments of $10,000 at the end of the next five years?

		4%.
		5%.
		6%.
		7%.

Renfro Corporation will invest $90,000 every December 31st for the next six years (2017 – 2022). If Renfro will earn 12% on the investment, what amount will be in the investment fund on December 31, 2022?

		$370,026
		$414,432.
		$730,367.
		$818,010.

Answer 1

1)

Future value = present value ( 1 + rate)ⁿ

30,000 = 18,000 ( 1 + 0.06)ⁿ

1.67 = ( 1 + 0.06)ⁿ

Take natural log on both sides,\

LN ( 1.67 ) = n LN ( 1 + 0.06)

n = LN ( 1.67) / LN ( 1 + 0.06)

n = 0.512824 / 0.058269

n = 8.8 or 9 years

It will take 9 years to accumulate 30,000.

2)

Using a financial calculator interest rate is 7%

Keys to use in a financial calculator: PMT = -10000, FV = 43,100, N = 5, CPT N)

3)

FV of annuity = A [ (1 + R)^N - 1] / R

FV = 90,000 [ (1 + 0.12)⁶ - 1] / 0.12

FV = 90,000 [ 0.973823 ] / 0.12

FV = 90,000 [ 8.115189 ]

FV = $730,367