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# FV, PV, Amortization and Annuity problems

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How much will \$1.00 deposited in a savings account earning a compound annual interest rate of 6 percent be worth at the end of the following number of years?

a. 3
b. 5
c. 10

If you require a 9 percent return on your investments, which would be preferred. Why?

a. \$5,000 today
b. \$15,000 five years from today
c. \$1,000 per year for 15 years

Mr Jones bought a building for \$60,000 payable on the following terms: a \$10,000 down payment and 25 equal annual installment payments to include principal and interest of 10 percent per annum. Calculate the amount of the installment payment. How much of the first year's payment goes toward reducing the principal amount?

The Mutual Assurance and Life Company is offering an insurance policy under either of the following two terms:

a. Make a series of twelve \$1,200 payments at the beginning of each of the next 12 years (the first payment being made today).

b. Make a single lump-sum payment today of \$10,000 and receive coverage for the next 12 years.

With investment opportunities offering an 8 percent annual return, which alternative would you perfer?

#### Solution Preview

I have attached the solutions to the questions.

Finance Problems
How much will \$1.00 deposited in a savings account earning a compound annual interest rate of 6 percent be worth at the end of the following number of years?
FV = PV [1 + r] ^ n
a. 3
FV = 1 (1.06)^3
= \$ 1.19
b. 5
FV = 1 (1.06)^5
= \$ 1.34
c. 10
FV = 1 (1.06)^10
= \$ 1.79

If you require a 9 percent return on your investments, which would be preferred. Why?
a. \$5,000 today
PV = \$ 5,000

b. \$15,000 five years from today
PV = \$ 15,000 * ...

#### Solution Summary

The solution has detailed answers (step by step instructions with formulas) for all the questions.

\$2.19