5. You\'re planning to purchase a car in 5 years and would like to save S25,000.

Question

5. You're planning to purchase a car in 5 years and would like to save S25,000.00 cash to put towards the purchase. How much do you need to save each year assuming they need to be equal annual deposits. Each deposit is compounded annually at 5%. a. S5,000.00 b. $4525.00 c. $4375.00 d. S3800.00 6. A person deposits $5,000 into a money market account which pays interest at a rate of 8% per year. The amount that would be in the account at the end of ten years is most nearly: a. $2,792 b. S9,000 c. $10,795 d. S12,165 7. A company is looking to reduce their general and overhead expenses by $5,000 for each year for the next 5 years. Their current annual general and overhead expenses are $50,000 per year. If the company's annual interest rate is assumed to be 10% per year, what is the present worth of their costs? a. S110,125 b. $223,849 c. $189,540 d. S155,231 8. A woman deposited $10,000 into an account at her credit union. The money was left on deposit for 10 years. During the first 5 years the woman earned 3% simple interest annually. The credit union changed their interest policy during the 6 year where all accounts were to earn 3% interest compounded annually. How much was the account worth at the end of the 10 year? a. S13,332 b. $13,000 c. $13,440 d. $14,940 9. Find: The present value of a series of uniform future payments. a. P A(P/A, i, n) b. A-FA/F, i, n) c. P F(P/F, i, n) d. F-A(F/A, i, n)

Explanation / Answer

Question 5

The car would cost $25,000 in 5 years.

This means this cost of car indicate future value.

So,

F = $25,000

Interest rate, i = 5%

Time period, n = 5 years

Calculate the annual deposits to be made -

A = F(A/F, i, n)

A = $25,000(A/F, 5%, 5)

A = $25,000 * 0.18097

A = $4,524.25

So,

The annual deposit to be made is most near to $4,525.

Hence, the correct answer is the option (b).

Question 6

Amount deposited in the money market account is $5,000.

This amount is deposited now. So, we have present value.

So,

P = $5,000

Interest rate, i = 8%

Time period, n = 10 years

We have to calculate the amount that would be in the account at the end of ten years.

This means we have to calculate the future value.

Calculate Future Value -

F = P(F/P, i, n)

F = $5,000(F/P, 8%, 10)

F = $5,000 * 2.1589

F = $10,794.50

So,

The amount in the account would approximately be $10,795.

Hence, the correct answer is the option (c).

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