Question

1. Using the following yearly cash flow and an interest rate of 6% /year compounded quarterly

       year                      0 _______1_______2_______3_______4_______5__

   cash flow, $        5000                            6500                                            8000  

determine:

         

1. The present value (present worth).

2. The equivalent uniform annual amount.

2. How much must be invested each month into an account paying 18% /year compounded monthly to accumulate $200,000 in four years?

3. The bank states that a new car loan with monthly payments is available for three years at an annual interest rate of 9%.

1. What would be the monthly payments on a $23,000 loan?

2. What is the effective annual interest rate (express to two decimals)?  

4. An Engineering company is reporting income of $30,000 for the first quarter, income of      $32,000 for the second quarter, and income increasing by $2,000 each quarter through                                   year four. What is the equivalent uniform amount per quarter if the interest rate is 3%             per quarter?                                        

Answer 1

1. Interest rate = 6% compounded quaterly.

First of all determine the effective interest rate

Effective interest rate = 6.136% per year

Now, as we can see from the Cash flow diagram the cash flow in year 0 is $ 5,000 and in year 2 it is $ 6,500 and in year 5 it is $ 8,000. (Cash flow is not exact thats why i have mentioned that which values i have taken in a given year).

Calculating the present worth of the cash flow

2. Future value = $ 200,000

Interest rate = 18% compounded monthly

Time= 4 years = 48 months

3. Loan amount = $ 23,000

Time = 3 year = 36 months

Interest rate = 9% per year

4. The present worth of the cash flow can be calculated as follows

Now calculating the equivalent uniform annual worth

The questions are little bit jumbled so it was difficult for me to understand which information belong to which question but i have still given a try and solved it best of my knowledge. If still there is any issue kindly contact through the vcomments section will revert back there. Please understand my limitation. Please help me. it mean a lot to me.