PROBLEM I Assume that $12,000 is deposited annually starting on January 1, 2018

Question

PROBLEM I Assume that $12,000 is deposited annually starting on January 1, 2018 at 12%. Required: a)      Calculate the amount that will accumulate by December 31, 2027 with annual compounding. b)      Calculate the amount that will accumulate by December 31, 2027 with quarterly compounding.

PROBLEM II Bates Company has entered into two lease agreements. In each case the cash equivalent purchase price of the asset acquired is known and you wish to find the interest rate which is applicable to the lease payments. Lease A — Lease A covers office equipment which could be purchased today for $252,336. Bates Company is leasing the equipment for $70,000 per year, payable at the end of each of the next 5 years. Lease B — Lease B applies to a machine which can be purchased for $201,212. Bates Company has chosen to lease the machine for $42,000 per year on a 6-year lease. Payments are due at the start of each year. Required: Determine the interest rate for each lease.

PROBLEM III Mr. Rich has $60,000 to invest today at 10%. Required: a)      Calculate the amount that will accumulate by the end of 6 years with annual compounding. b)      Calculate the amount that will accumulate by the end of 6 years with semi-annual compounding.

PROBLEM IV Tom wants to retire at the end of this year (2018). His life expectancy is 20 years from his retirement. Tom has come to you, his CPA, to learn how much he should deposit on December 31, 2018 to be able to withdraw $80,000 at the end of each year for the next 20 years, assuming the amount on deposit will earn 8% interest annually. Required: Calculate the required 12/31/18 deposit amount for Tom’s retirement account.

PROBLEM V Judy Thomas has a $2,800 overdue debt for medical books and supplies at Joe's Bookstore. She has only $900 in her checking account. Joe's tells her that she may settle the account in one of two ways since she can't pay it all now: Assume the current interest rate is 8%. Required: a)      Calculate the total cost of each alternative b)      Indicate which alternative Judy should choose

Explanation / Answer

ANS1-AMOUNT=12000

NO OF YEARS=10

RATE OF INTEREST=12%

FORMULAE=P(1+R/100)10

=12000(1.12)10

  =37270 ANSWER

QUATERLY COMPUNDING

RATE OF INTEREST=12/4 =3%

=12000(1.03)4*10

=39137 ANSWER

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