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BUAD -Chapter 12
1. Find the amortization payment you would need to make very six months, at 6% interest compounded
semiannually, to pay off a loan of $4000 in 6 yrs. (Use table 12-2 from text)
• 1. 4,556 answers
Equal semi-annual payment
[P×r×(1+r)^n]÷[(1+r)^n-1]
Here,
Interest rate per annum
6.00%
Number of years
6
Number of compoundings per per annum
2
Interest rate per period ( r)
3.00%
Number of periods (n)
12
Loan amount (P)
$ 4,000
Equal semi-annual payment
$ 401.85
(4000*(1+3%)^12)/((1+3%)^12-1)
2. Shiraz deposited $500 at the END of each year for 18 years in a savings account. If the account paid
5% interest, compounded annually, use Table 12-1 from your text to find the future value of his account.
3. Use Table 12-1 of your text to find the future value of $1,300 deposited at the BEGINNING of
every three months, for 3 years if the bank pays 12% interest, compounded quarterly. number of
payments n=(3 years)*(4 quarters per year)+1(due to payment in beginning)
n=3*4+1=13
rate of interest i=12%yearly= 12%/4 quarterly=0.03
payment per period R= $1300
Hence future value S is given by formula :
Hence future value is
4. Lidia deposits $900 at the END of each year for 9 years in a savings account. The
account pays 8% interest, compounded annually. Lidia calculates that the future value
of the ordinary annuity is $11,238.80. What would be the future value if deposits are
made at the BEGINNING of each period rather than the END
Future value of annuity due = (1+r)×P[(1+r)^n-1]÷r
r is interest rate
P is payment per period
n is number of payments
= (1+8%)×$900×[(1+8%)^9-1]÷8%
= $12,137.9
5. Leon’s Plumbing wishes to pay off a debt of $21,000 in 6 years. What amortization
payment would they need to make every three months, at 6% interest compounded
quarterly? (Use Table 12-2 from your text)
Equal quarterly payment
[P×r×(1+r)^n]÷[(1+r)^n-1]
Here,
Interest rate per annum
6.00%
Number of years
6
Number of compoundings per per annum
4
Interest rate per period ( r)
1.50%
Number of periods (n)
24
Loan amount (P)
$ 21,000
Equal quarterly payment
$ 1,048.41
(21000*(1+1.50%)^24)/((1+1.50%)^24-1)
6. Mechanic’s Hardware needs to accumulate $41,000 in 3 years to purchase new
equipment. What sinking fund payment would they need to make at the END of each
month, at 6% interest compounded monthly? (Use Table 12-1 from your text)
7. Your bank pays 9% interest, compounded annually. Use the appropriate formula to
