Exam 8: Compound Interest: Future Value and Present Value

Calculate the original principal:

Payments of $2,300 due 18 months ago and $3,100 due in three years are to be replaced by an equivalent stream of payments consisting of $2,000 today and two equal payments due two and four years from now. If money can earn 4.75% compounded semi-annually, what should be the amount of each of these two payments?

An investor has a choice of three investments, 6.85% compounded quarterly, 7% pa, and 6.6% compounded monthly. Which rate should the investor choose?

Calculate the periodic interest rate for 4.8% compounded monthly.

Two payments of $3,000 each are due today and five years from today. The creditor has agreed to accept three equal payments due one, three, and five years from now if the payments are based on the recognition that money can earn 7.5% compounded monthly. What payments will the creditor accept?

Sam has a financial obligation that requires him to pay $1,700 in one year; $1,300 in 2 ½ years and a final payment of $2,000 in 3 years. If Sam wishes to pay off all his obligations in 18 months, given an interest rate of 6.7% compounded quarterly. Using the financial functions on the calculator, determine the lump sum payment needed to fulfill his obligations in 18 months.

Calculate the maturity value of the five-year compound-interest GIC whose interest rate for each year is given. Also calculate the dollar amount of interest earned in the fourth year.

A $4,000 loan at 5% compounded monthly is to be repaid by three equal payments due 5, 10, and 15 months from the date of the loan. What is the size of the payments?

Calculate the missing value:

Calculate the combined equivalent value of the scheduled payments on the indicated dates. The rate of return that money can earn is given in the fourth column. Assume that payments due in the past have not yet been made.

Scheduled payments of $8,000 and $9,000 are due 2 years and 3 years from today. The payments have been replaced by a $5,000 in four years and another payment one year from now. Determine the value of the final payment if interest is 3.85% compounded monthly.

If two payment streams are equivalent at one interest rate, will they be equivalent at another interest rate?

Today is Almo's 20^th birthday and he has just received a large amount of money to sign a contract with a professional hockey team. He wants to put away enough money to make sure that on his 50^th birthday he will have $2,500,000. For the next ten years he is confident that his investments will earn 15% compounded annually and after that, 10% compounded annually. How much must he invest today?

A payment of $8,000 is due on May 15, 2023. What was the value of this obligation on May 15, 2008 if money can earn 12% compounded quarterly between the two dates?

$3,500 borrowed one year ago, is to be settled by payments of $500 today, $1,500 six months from now, and a final payment eighteen months from now. What is the amount of the final payment if the interest rate on the loan is 12% compounded monthly?

Eighteen years from now I will need to have $120,000 to pay for my child's post-secondary education. I anticipate being able to earn 14% compounded annually for the first 10 years and 11% compounded annually for years #11 through #20. What amount of money should I invest today in order to meet my goal?

A $2,000 payment due 2 years ago and another $4,000 payment 18 months from now are to be replaced by a lump sum payment in 3 years. Using the financial functions on the calculator, determine the value of this payment if interest is at 2.4% compounded quarterly.

Payments of $4,000 and $3,500 were originally scheduled to be paid two years and 4 years from today. They are to be replaced by a $5,000 payment 3 years from today and anther payment in 6 years. Determine the value of the final payment if interest is 4% compounded quarterly.

Calculate the combined equivalent value of the scheduled payments on the indicated dates. The rate of return that money can earn is given in the fourth column. Assume that payments due in the past have not yet been made.

A loan of $7,000 is to be repaid by two equal payments in six months, and two years. If interest is 5.4% compounded monthly, what is the size of the payments?