FINANCIAL MATHEMATICS AND ANNUITIES TUTORIAL WORKSHEET
[Link] the present value of $300 due in 2 years at 6% p.a. compounded semi-annually.
[Link] much money would you have to invest at 15% p.a. compounded annually over 5 years
to accumulate $10,000?
[Link] the compound interest for the following:
a) On $10 for 3 years at 3% compounded annually
b) On $50 for 4 years at 2% compounded half-yearly
c) On $500 for 5 years at 8% compounded quarterly
d) On $2000 for 2 years compounded monthly at 6%
[Link] you have two options to invest $5,000:
a) In a savings account paying 5% compounded annually
b) In a business that returns $7,000 after 5 years
Which option is better?
5. Create an amortization schedule for a 5-year fixed-rate loan of $20,000 at 4% interest per
annum.
6. Emily is financing $30,000 for a car at 6% interest with a 7-year fixed-rate loan. Create an
amortization schedule for this loan.
7. Create an amortization schedule for a 5-year fixed-rate loan of $15,000 at 3% interest per
annum.
8. Payments of $100 are made at the end of each quarter into an account earning 3.6% annual
interest compounded quarterly. What is the future value of the account at the end of 3 years?
9. At the end of each month, payments of $50 are made into an account earning 4.8% annual
interest compounded monthly. Find the future value of the account at the end of 5 years.
10. Find the PV of an annuity that pays $1,000 at the end of each quarter for 5 years if the
annual interest rate is 4% compounded quarterly.
11. Mr. Smith is financing $40,000 for a home at 5% interest with a 15-year fixed-rate loan.
Find the interest paid and principal paid for each of the first 3 months of the loan and find the
principal owed at the end of the 3rd month.
12. John is 25 years old and wants to save for retirement. He has two options:
Plan A: Invest $1,000 now and $500 every year until age 35, with an interest rate of 6% p.a.
Plan B: Invest $1,500 on his 35th birthday and $500 every year until age 45, with an interest
rate of 7% p.a.
How much will John have in savings at age 45 under each plan?
13. Mr Zikhali deposits $50 at the end of each month into an account that pays 4.8%
compounded monthly. After two years, he puts the accumulated amount into a certificate of
deposit paying 6.5% compounded quarterly for two years. Thereafter, he puts the money into
a 60-day certificate of deposit paying 6.2% annually. When the certificate matures, how
much money would have Mr Zikhali accumulated?
14. An annuity will pay $6,000 at the end of each year for 4 successive years, the first
payment being 12 months from the initial purchase date. What is the maximum price any
rational investor would pay for such an annuity if the opportunity cost of capital is 9%?
15. McDonald's Harare will start paying a $4,000 franchising fee beginning next year. If a
fund earning 7.5% compounded annually is set aside from which payments will be made,
what should be the size of the fund to guarantee annual payments of $4,000 for the next six
years?
16. An annuity will pay $1,500 a year for the next 4 years with the first payment starting
now. Capital can be invested elsewhere at an interest of 12%. Is $5,500 a reasonable price to
pay for this annuity?
17. What would be a reasonable price to pay for a pension plan which guarantees to pay $150
at the beginning of every month for the next 18 months if you can earn 1.1% a month on your
bank deposit account?
18. Find the future value of an annuity of $1,800 for 18 months if interest is converted
quarterly.
19. How long will it take $12,000 to double if interest is 9% per annum compounded
annually?
20. The director of a company has been offered preference shares that earn $4,500 annually
as part of his revised compensation package. The interest rate is currently at 4.5% pa. What is
the present value of the perpetuity?
21. What would be the maximum price you would pay for a perpetual annuity that will pay
$800 per annum, starting in 12 months' time, given an interest rate of 14%?
22. Find the monthly payments for the following annuities:
LOAN AMOUNT ANNUAL RATE % YEARS
A 375000 5.5 25
B 175000 6.25 12
C 60000 7.8 20
