1/ $100 invested for 10 years at 12% interest is worth more in FV terms than $200 invested for 10 years at 4% interest.

2/ Shawn wants to buy a new telescope. He estimates that it will take him one year to save the money and that the telescope will cost $200. At an interest rate of 6%, h
aside today to purchase the telescope in one year?

3/ Johnny and Darren both earn $100 working on their respective neighbors' big farms. Johnny puts his $100 in the piggy bank that his parents gave him to encourage
savings account his parents set up for him. The savings account pays 3% interest. They both take their money out after 5 years. How much more money does Darren h

4/ Your dad invested $25 for you in 1942 in a fund and you have not withdrawn any money since.If the fund has averaged a return of 8 percent over the last 70 years,
investment?

5/ Bridgettes grandparents opened a savings account for her and placed $500 in the account. The account pays 3.5% interest. Bridgette wants to be a singer and she h
machine. The machine costs $150. How much less will the account be worth in 8 years if she buys the karaoke machine now versus leaving the account untouched?

6/ Juan has $100,000 to invest and he has narrowed down his decision to two investments. Option A returns 60% annually for 4 years, but the maximum investment h
annually for 4 years and would require the entire $100,000. Which option produces the best result for Juan and what is the benefit over the lesser option? Assume tha
placed in a safe deposit box earning no interest.

7/ Ralph knows that he is going to have to replace his roof soon. If he has the roof replaced now, it will cost $10,000. He could wait 5 years, but it will then cost him
cost the same.

8/ Rondo is in the market for a new car. He has narrowed his search down to 2 models. Model A costs $32,000 and Model B costs $28,000. With both cars he plans t
a new car. His research indicates that the trade in value for Model A after 4 years is 60% of the initial purchase price, while the trade in value for Model B is 45%. Th
and maintenance costs for the models are identical. Which model is the better decision and how much "cheaper" is it than the alternative?

9/ College tuition has been rising at a rate of 7% per year. Currently the average tuition of a state college is $9,500/year. Andreas son Trevor will begin college in 1
much does Andrea need to have set aside today/now to pay for 4 years of college for Trevor? (Note:Tuition will continue to change annually and Andreas portfolio
school. Also, tuition is due at the beginning of each year.)
Initial statements
College tuition/
$9,500.00
College tuition
7.00%
Andreas portfol
5.00%

PV
PV
PV
PV

1
2
3
4

phn
phn
phn
phn

$11,913.99
$22,893.53
$24,496.07
$26,210.80

Ph 4 nm
FV 1 nm
FV 2 nm
FV 3 nm
FV 4 nm

-$21,395.82
-$22,893.53
-$24,496.07
-$26,210.80

$85,514.39

10/ Christine is a new homebuyer. She wants to make sure that she incorporates the cost of maintenance into her decision. She estimates that routine repairs and mai
in the first year (one year from now). Due to the increasing age of the home, she expects that maintenance costs will increase 6% annually. The interest rate is 5%. If
present value of all future maintenance? (Note that maintenance costs will change annually, and starts one year from now and she plans to do the last one before sell

00. At an interest rate of 6%, how much does Shawn need to set

parents gave him to encourage him to save. Darren puts his money in a
ch more money does Darren have than Johnny?

percent over the last 70 years, what is the current value of that

wants to be a singer and she has her heart set on a new karaoke
ving the account untouched?

ut the maximum investment he can make is $10,000. Option B returns 12%

he lesser option? Assume that the $90,000 not invested in Option A would be

ears, but it will then cost him $20,000. At what rate will these options

000. With both cars he plans to pay cash and own them for 4 years before trading in for
value for Model B is 45%. The interest rate is 5%. For simplicity assume that operating
e?

Trevor will begin college in 12 years. Andreas portfolio is making 5% annually. How
nually and Andreas portfolio balance will continue to accrue interest while Trevor is in

s that routine repairs and maintenance on the home she is considering will be $1,590
ally. The interest rate is 5%. If she plans to be in the home for 10 years, what is the
to do the last one before selling her house.)

1/ Qin deposits his first paycheck in the bank. The annual interest rate is 12%, but interest is compounded quarterly. T

2/ Gloria is 35 and trying to plan for retirement. She has put a budget together and plans to save $4,800 per year, start
she have for retirement at age 65?

3/ Mohammad has just turned 21 and now has access to the money his parents have been putting away in an account
$1,000 every year in the account starting on his 5th birthday and have just made one. The interest rate on the account

4/ Marcel has just graduated from college and has found a job that will pay him $25,000 per year at the end of each y
anyway. What is the value today of his 5-year salary assuming that the interest rate is 3%?

5/ Rachna is considering a life insurance plan that will require her to pay a premium of $200 every year for the next
cover all future payments. How much would she need to deposit in her bank if the annual interest rate on her deposit

6/ Roxanne is in the market for a new house, and she has found a house she likes that is selling for $250,000. The d
the remainder with a fixed rate mortgage. The annual rate is 6% and the mortgage is for 15 years, though payments
first)
Initial Statements
debt
rate
nper

$200,000
6%
$180

Monthly payment on the debt

$1,687.71

7/ Abebi, who has just celebrated her 29th birthday, will retire on her 55th birthday, and she has just set up a retirem
$120,000 for each of these twenty years. In creating her retirement account, Abebi has committed to set aside equal
should Abebi's equal payments be?

7/ Abebi, who has just celebrated her 29th birthday, will retire on her 55th birthday, and she has just set up a retirem
$120,000 for each of these twenty years. In creating her retirement account, Abebi has committed to set aside equal
should Abebi's equal payments be?

8/ Two years ago Abilia purchased a $10,000 car; she paid $2000 down and borrowed the rest. She took a fixed rate
refinance her car by borrowing the amount she still owes on the car at a new fixed rate of 6% per year for 3 years. S

9/ You have been living in the house you bought 10 years ago for $300,000. At that time, you took out a loan for 8
payment. Interest rates have meanwhile dropped steadily to 6% per year, and you think it is finally time to refinan
balance? How much would you save/lose if you decided to refinance?

10/ You are interested in a new Ford Taurus. After visiting your Ford dealer, doing your research on the best lease
the car is $15,000. (ii) Lease the car from Dealer B. Under this option, you pay the dealer $500 now and $200 a m
car for $8,000. (iii) Purchase the car from Dealer C who will lend you the entire purchase price of the car for a ze
the net cost today of the cheapest option?

ut interest is compounded quarterly. The EAR (Effective Annual Rate) is:

nd plans to save $4,800 per year, starting at the end of this year, in a retirement fund until she is 65. Assume that she can make 7% on he

have been putting away in an account for him since he was 5 years old. His mother has asked him to guess what his account is worth give
e one. The interest rate on the account has been 3.5% annually. How much is Mohammads account worth today?

m $25,000 per year at the end of each year, but the job is only for 5 years. He is not worried about that because he plans to do an MBA af
rate is 3%?

mium of $200 every year for the next 40 years. She wants to make sure that she is able to make this payment and wants to put away a lum
the annual interest rate on her deposit account is 4%?

kes that is selling for $250,000. The down payment on the house is 20% (the amount that the bank should require you to pay in cash) and
gage is for 15 years, though payments are monthly. What is the interest component of Roxanne's first and 5th monthly payment? ( Read

thday, and she has just set up a retirement plan to pay her income starting on her retirement day, and to continue paying for 19 more year
Abebi has committed to set aside equal payments at the end of each year, for the next 25 years starting on her 30th birthday. If the annual

thday, and she has just set up a retirement plan to pay her income starting on her retirement day, and to continue paying for 19 more year
Abebi has committed to set aside equal payments at the end of each year, for the next 25 years starting on her 30th birthday. If the annual

orrowed the rest. She took a fixed rate 60-month installment loan at a stated rate of 8% per year. Interest rates have fallen during the las
fixed rate of 6% per year for 3 years. Should Abilia refinance her loan? How much will she save per month for the next three years if she

At that time, you took out a loan for 80% of the house at a fixed rate 15-year loan at an annual stated rate of 9%. You have just paid off t
d you think it is finally time to refinance the remaining balance. But there is a catch. The fee to refinance your loan is $4,000. Should you

doing your research on the best leases available, you have three options. (i) Purchase the car for cash and receive a $1,500 cash rebate f
pay the dealer $500 now and $200 a month for each of the next 36 months (the first $200 payment occurs 1 month from today). After 36
ntire purchase price of the car for a zero interest 36-month loan with monthly payments. The car price is $15,000. Suppose the market in

Assume that she can make 7% on her account. How much will

guess what his account is worth given that they have invested
worth today?

t because he plans to do an MBA after gaining 5 years experience

payment and wants to put away a lump sum today in her bank to

hould require you to pay in cash) and Roxanne plans to finance

and 5th monthly payment? ( Read the sheet ExcelFunction

to continue paying for 19 more years. Abebi's goal is to receive

g on her 30th birthday. If the annual interest rate is 9%, how big

to continue paying for 19 more years. Abebi's goal is to receive

g on her 30th birthday. If the annual interest rate is 9%, how big

erest rates have fallen during the last two years and she can
month for the next three years if she decides to refinance?

d rate of 9%. You have just paid off the 120th monthly
ance your loan is $4,000. Should you refinance the remaining

h and receive a $1,500 cash rebate from Dealer A. The price of

ccurs 1 month from today). After 36 months you may buy the
e is $15,000. Suppose the market interest rate is 6%. What is

Take out $100,000 in a loan at Inerest Rate 10%, yearly payments, 5 years to pay back
Loan Amortization
Beginning
Yearly
Principal
Year
Interest
Yearly Payment = Interest + Principal Repayment
Balance
Payment
Repayment
1
$100,000.00 ($26,379.75) ($10,000.00) ($16,379.75)
2
$83,620.25 ($26,379.75)
($8,362.03) ($18,017.72)
3
$65,602.53 ($26,379.75)
($6,560.25) ($19,819.50)
4
$45,783.03 ($26,379.75)
($4,578.30) ($21,801.44)
5
$23,981.59 ($26,379.75)
($2,398.16) ($23,981.59)
CUMPRINC

CUMIPMT

($34,397.47) =E4+E5
($19,819.50) =E6

($18,362.03) =D4+D5
($6,560.25) =D6

Take out $100,000 in a loan at Inerest Rate 10%, monthly payments, 12 months to pay back
Loan Amortization
Beginning
Yearly
Principal
FV of monthly
Year
Interest
Balance
Payment
Repayment
payment
1
$100,000.00
($8,791.59)
($833.33)
($7,958.26)
$9,631.92
2
$92,041.74
($8,791.59)
($767.01)
($8,024.57)
$9,552.31
3
$84,017.17
($8,791.59)
($700.14)
($8,091.45)
$9,473.37
4
$75,925.72
($8,791.59)
($632.71)
($8,158.87)
$9,395.08
5
$67,766.85
($8,791.59)
($564.72)
($8,226.86)
$9,317.43
6
$59,539.99
($8,791.59)
($496.17)
($8,295.42)
$9,240.43
7
$51,244.56
($8,791.59)
($427.04)
($8,364.55)
$9,164.06
8
$42,880.01
($8,791.59)
($357.33)
($8,434.26)
$9,088.33
9
$34,445.76
($8,791.59)
($287.05)
($8,504.54)
$9,013.22
10
$25,941.22
($8,791.59)
($216.18)
($8,575.41)
$8,938.73
11
$17,365.80
($8,791.59)
($144.72)
($8,646.87)
$8,864.85
12
$8,718.93
($8,791.59)
($72.66)
($8,718.93)
$8,791.59
CUMPRINC

($32,501.76)

=SUM(E20:E23)

CUMIPMT
Effective Annual Rate (EAR)
Loan (principal) + Interest

($2,664.60) =SUM(D20:D23)
10.47%
$110,471.31 =B19*(1+D36)

=SUM(G19:G30)

cipal Repayment