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# Faculty of Economics and Business

## Universiti Malaysia Sarawak

EBQ1043
Tutorial 8

1. As a fringe benefit for the past 12 year. Colin’s employer has contributed \$100 at the
end of each month into an employee retirement account for Colin that pays interest at the
rate of 7%/ year compounded monthly. Colin has also contributed \$2000 at the end of
each of the last 8 year into an IRA that pays interest at the rate of 9%/year compounded
yearly. How much does Colin have in his retirement fund at this time?

2. Karen has been depositing \$150 at the end of each month in a tax free retirement
account since she was 25. Matt, who is the same age as Karen, started depositing \$250 at
the end of each month in a tax free retirement account when he was 35. Assuming that
both accounts have been and will be earning interest at the rate of 5%/year compounded
monthly, who will end up with the larger retirement account at the age of 65.

3. Pierce Publishing sells encyclopaedias under two payment plans: cash or instalment.
Under the instalment plan, the customer pays \$22/ month over 3 year with interest
charged on the balance at a rate of 18% /year compounded monthly. Find the cash price
for a set of encyclopaedias if it is equivalent to the price paid by a customer using the
instalment plan.

4. Mr Sullivan is borrowing \$2 million to expand his business. The loan will be for ten
years at 12% on the declining balance, and will be repaid in equal quarterly instalments.
What will the quarterly payments be? At the end of the first year, how much interest will
Mr. Sullivan have paid? By how much will he have reduced the principal?

5. Marcia Stubern is planning for her golden years. She will retire in 20 years, at which
time she plans to begin withdrawing \$60,000 annually. She is expected to live for 20
years following her retirement. Her financial advisor thinks she can earn 9% annually.
How much does she need to invest each year to prepare for her financial needs after her
retirement?

6. Samuel Johnson invested in gold U.S. coins ten years ago, paying \$185 for one-ounce
gold “double eagle” coins. He could sell these coins for \$734 today. What was his annual
rate of return for this investment?
7. How long will it take an investment of \$5,000 to triple if the investment earns interest
at the rate of 8%/ year compounded daily?

8. Find the interest rate needed for an investment of \$4,000 to double in 5 year if interest
is compounded continuously.

9. Five and a half years ago, Chris invested \$10,000 in a retirement plan that grew at the
rate of 10.82% / year compounded quarterly. What is his account worth today?

10. Anthony invested a sum of money 5 year ago in a savings account that has since paid
interest at the rate of 8%/year compounded quarterly. His investment is now worth
\$22,289.22. How much did he originally invest?

11. Fleet Street Savings Bank pays interest at the rate of 4.25% / year compounded
weekly in a savings account, whereas Washington Bank pays interest at the rate of
4.125% / year compounded daily (assume a 365 day year). Which bank offers a better
rate of interest?

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