Theory of Interest

Topics: Time, Time value of money, Perpetuity Pages: 4 (943 words) Published: April 6, 2013
Homework 2
Theory of Interest
Annuities immediate, due, deferred, continuous, perpetuities

1.Determine the present value of regular payments of \$250 to be made at the end of each of the next 50 years. The annual effective interest rate is 5%.

A. 3598B. 3975C. 4136D. 4564E. 4973

2.Find the present value of 50 regular annual payments of \$3000 at the beginning of each year, starting now. The annual effective interest rate is 6%.
A. 50,000B. 50,123C. 50,234D. 51,000E. 51,234

3.Find the present value at time 0 of regular payments of \$50 at times 25 years, 26 years, and so on, with the last payment at time 40 years. Use an annual effective interest rate of 12%

A. 22.97B. 23.71C. 24.27D. 25.09E.26.00

4. \$100 per year is received continuously from time 5 years to time 8 years. Assuming an annual effective interest rate of 4.5%, what is the accumulated value at time 10 years?

A. 250.74B. 275.66C. 300.12D. 325.50E. 350.22

5.Payments of \$5000 are received at the end of each year for 10 years, after which payments of \$1000 are received at the end of each year forever. The annual effective interest rate is 9%. Determine the present value of these payments.

A. 33300B. 36782C. 37541D. 37759E. 40000

6. A perpetuity-immediate pays \$X per year. Brian receives the first n payments, Colleen receives the next n payments, and Jeff receives the remaining payments. Brian’s share of the present value of the original perpetuity is 40%, and Jeff’s share is K. Calculate K.

A. 0.16B. 0.25C. 0.36D. 0.49E. 0.64

7. To accumulate \$8000 at the end of 3n years, deposits of \$98 are made at the end of each of the first n years and \$196 at the end of each of the next 2n years. The annual effective interest rate is i. You are given . Determine i.

A. 11.25%B. 11.75%C. 12.25%D. 12.75%E. 13.25%

8. Connie buys an annuity-immediate from an insurance company. Connie pays \$300,000 and in return...

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