4. It costs $75 per year to maintain a cemetery plot. If the interest rate is 6.

Question

4. It costs $75 per year to maintain a cemetery plot. If the interest rate is 6.0%, how much must be set aside to pay for maintenance on each plot without touching the principal? (A) SIIS (B) S1200 (C) S1250 (D) S1300 SA loan of $10,000 is made today at an interest rate of 15% and the first payment the loan after the first payment is most nearly (A) S7000 (B) $8050 (C) $8500 (D) $14,500 of S3000 is made 4 years later. The amount that is still due on 6. The maintenance cost for an investment is $2000 per year for the first 10 ycars With a 10% interest rate, the present worth of the annual disbursement is most nearly (A) S10,000 (B)$16,000 (C) $20,000 (D) $24,000 and S1000 per year thereafter. The investment has infinite life 7. With an interest rate of 8% compounded semiannually, the value of a $1000 investment after 5 years is most nearly (A) S1400 (B) $1470 (C) $1480 (D) S1800

Explanation / Answer

ANSWER:

4) Prinicipal = $75

i = 6%

for infinite life the amount that must be set aside = principal amount / i = 75 / 6% = $1,250

hence option c is the right answer.

5) loan amount = $10,000

i =15%

n = 4 years.

future value after 4 years = loan amount(f/p,i,n)

fv after 4 years = 10,000(f/p,15%,4)

fv after 4 years = 10,000 * 1.749 = $17,490

amount paid after 1st installment = $3,000

loan amount left = fv after 4 years - amount paid after 1st installment = $17,490 - $3,000 = $14,490

ence option d is the right answer.

6) maintenance cost for 1st 10 years = $2,000

maintenance cost after 10th year till infinity = $1,000

i =10%

pw = maintenance cost for 10 years(p/a,i,n) + maintenance cost after 10 years(p/a,i,infinity) (p/a,i,10)

pw = 2,000(p/a,10%,10) + 1,000(p/a,10%,infinity) (p/f,10%,10)

pw = 2,000 * 6.145 + 1,000 * 10 * 0.3855

pw = $12,290 + $3,855

pw = $16,145

so option b is the right answer.

7) i = 8% per year or 8% / 2 = 4% compounded semiannually

n = 5 years or 10 semi years

amount = $1,000

fv = amount(f/p,i,n)

fv = 1,000(f/p,4%,10)

fv = 1,000 * 1.480

fv = $1,480

hence option c is the right answer.

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