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PROBLEM SET: CHAPTER REVIEW
Simple Interest (6.1)
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Manuel borrows $800 for 6 months at 18% simple interest. How much does he owe at the end of 6 months?
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An amount of $2300 is borrowed for 7 months at a simple interest rate of 16%. Find the total that will need to be paid back.
Compound Interest (6.2)
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In the year 2000, an average house in Star City cost $250,000. If the average annual inflation rate for the past years has been about 4.7%, what was the price of that house in 2015?
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A Visa credit card company has a finance charge of 1.5% per month (18% per year) on the outstanding balance. John owed $3200 and has been delinquent for 5 months. How much total does he owe, now?
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A sum of $5000 is deposited in a bank today. What will the final amount be in 20 months if the bank pays 9% and the interest is compounded monthly?
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City Bank pays an interest rate of 6%, while Western Bank pays 5.8% compounded continuously. Which one is a better deal?
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If a bank pays 6.8% compounded continuously, how long will it take to double your money?
Future Value of Annuities and Sinking Funds (6.3)
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A corporation estimates it will need $300,000 in 8 years to replace its existing machinery. How much should it deposit each quarter in a sinking fund earning 8.4% compounded quarterly to meet this obligation?
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A business must raise $400,000 in 10 years. What should be the size of the owners' monthly payments to a sinking fund paying 6.5% compounded monthly?
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A mutual fund claims a growth rate of 8.3% per year. If $500 per month is invested, what will the final amount be in 15 years?
Present Value of Annuities and Installment Payments (6.4)
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You look at your budget and decide that you can afford $250 per month for a car. What is the maximum amount you can afford to pay for the car if the interest rate is 8.6% and you want to finance the loan over 5 years?
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Lisa buys a car for $16,500, and receives $2400 for her old car as a trade-in value. Find the monthly payment for the balance if the loan is amortized over 5 years at 8.5%.
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You want to purchase a home for $200,000 with a 30-year mortgage at 9.24% interest. Find
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the monthly payment
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the balance owed after 20 years.
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Ali has inherited $20,000 and is planning to invest this amount at 7.9% interest. At the same time she wishes to make equal monthly withdrawals to use up the entire sum in 5 years. How much can she withdraw each month?
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Mr. Albers borrowed $425,000 from the bank for his new house at an interest rate of 4.7%. He will make equal monthly payments for the next 30 years. How much money will he end up paying the bank over the life of the loan, and how much is the interest?
Classification of Finance Problems (6.5)
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Determine which formula would be used to answer the question, then find the answer.
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The United States paid about 4 cents an acre for the Louisiana Purchase in 1803. Suppose the value of this property grew at a rate of 5.5% annually. What would an acre be worth in the year 2000?
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When Jose bought his car, he amortized his loan over 6 years at a rate of 9.2%, and his monthly payment came out to be $350 per month. He has been making these payments for the past 40 months and now wants to pay off the remaining balance. How much does he owe?
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What amount should be invested per month at 9.1% compounded monthly so that it will become $5000 in 17 months?
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How much should Mr. Shackley deposit in a trust account so that his daughter can withdraw $400 per month for 4 years if the interest rate is 8%?
Additional Application Problems (6.6)
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Mr. Nakahama bought his house in the year 1998. He had his loan financed for 30 years at an interest rate of 6.2% resulting in a monthly payment of $1500. In 2015, 17 years later, he paid off the balance of the loan. How much did he pay?
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Find the 'fair market' value of a ten-year $1000 bond which pays $30 every six months if the current interest rate is 7%. What if the current interest rate is 5%?
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Mrs. Tong puts away $500 per month for 10 years in an account that earns 9.3%. After 10 years, she decides to withdraw $1,000 per month. If the interest rate stays the same, how long will it take Mrs. Tong to deplete the account?
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An amount of $5000 is borrowed for 15 months at an interest rate of 9%. Find the monthly payment and construct an amortization schedule showing the monthly payment, the monthly interest on the outstanding balance, the amount of payment contributing towards debt, and the outstanding debt.