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Future Value / Present Value, Interest and Annuity Tables

1. If you borrow $15,618 and are required to pay the loan back in 7 equal annual installments of $300. What is the interest rate assocated with this loan?

2. Your rich uncle has offered you a choice of one of the three following alternatives. Which one would you take?
a) $10,000 now
b) $2000 a year for 8 years -equal investments have earned 11%
c) $24, 000 at the end of 8 years - equal investments have earned 11%.

3. Joe will receive $175,000 in 50 years. What is his pot of gold worth today if the alternative investment rate is 14%.

I would like Jiong Tu, Phd assistance and possible on-line tutor if possible. I was having a very difficult time reading the table and with your assistance I was able to take my test at school and feel that I can understand the problems. Again thank your for help me.

Solution Preview

1.)
Amount of installments y = $3000
NOTE: it should be $3000, not $300.

Let us assume the rate of interest be 'r', and the principal for the installments be x1, x2, x3,....,x7 for 7 installments respectively.

Therefore, for 1st installment,
y = x1*(1 + r/100)^1
=> x1 = y/(1+r/100) = y*K

where K = 1/(1+r/100)

For 2nd installment,
y = x2*(1+r/100)^2
=> x2 = y/(1+r/100)^2 = y*K^2

And so on up to the 7th installment.

Therefore, total principal,
P = 15618 = x1 + x2 + x3 + ..........+ x7
=> 15618 = ...

Solution Summary

Future Value / Present Value, Interest and Annuity Tables are investigated.

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