5.2

A. Problems: Present value, future value and interest rate

1. Jos Lpez has $ 15,000 in a 6-year certificate of deposit (CD) that pays a guaranteed annual rate of 4%. Make a timeline showing when the cash flows will occur.

2. Oliver Lpez deposits $ 12,000 in a bank account that pays 7% annual interest. Calculate the account balance after 5 years.

3. Carmen Hernndez has saved $ 8,000 for a car deposit. The highest monthly payment you can afford is $ 455. The loan will have an 11% APR due at the end of each month. Determine what is the most expensive car you can buy if you buy it on credit payable in 60 months.

4. Determine the present value of a financial instrument that pays $ 18,500 in 10 years if similar risk instruments pay 6% per year.

5. Calculate the future value (FV) of a $ 5,000 investment at an interest rate of 10% over 7 years.

6. Determine the interest rate you will pay, if you are approved for a loan for $ 112,000 with annual payments of $ 15,000 over 8 years.

B. Problems (Value: 34 points)

7. Reynaldo Seplveda is retiring in 20 years and currently has savings of $ 125,000. Reynaldo thinks he will need $ 650,000 at the beginning of his retirement and has no additional funds saved. Determine the annual interest rate you will need to meet your goal.

8. Suppose you want to buy heavy equipment machinery and a commercial bank will loan you $ 65,000 for the transaction. The loan will be amortized over 5 years and the nominal interest rate will be 8% payable monthly. Calculate the monthly payment and the annual rate (EAR) of the loan to be repaid.

9. Master Paint Industries sales in 2019 were $ 18 million, while in 2017 they were $ 10 million. Determine the growth rate of sales.

10. Determine the present value of a $ 3,500 perpetuity if the interest rate is 7%. If interest rates doubled to 14%, find present value.

11. Find the future value of an ordinary annuity that pays $ 2,350 at 6% over 6 years. It also determines the future value if this were a prepayment annuity.

12. Mr. Del Valle is 54 years old and plans to retire in 8 years. You want to live at least 20 years after you retire. He has $ 125,000 in savings and expects to earn 7% annual interest. He expects to have an income of $ 45,000, the same as he currently receives from the work he does. Del Valle will begin receiving your benefit after 8 years biweekly (24 payments per year) after you retire. Annual inflation is expected to reach 5%. Determine how much Mr. Del Valle must save over the next 8 years to meet the retirement goal.