BMTH 120_99 - Assignment #3

On

Chapter 10 (10.4 – 10.8) & Chapter 12(12.1-12.2)

Instructions: 
 
Please note this assignment has two components. 
 
1. The first component is for you to complete all the questions.  
 Please type out your solutions on this assignment and show all the Calculator
steps (Show the values for C/Y,P/Y, PV, PMT,FV,I/Y and N)
 Submit the assignment on Blackboard under “Assignment” before 11:59pm on
Nov.10th.
 
2. The answers (not solutions) for all the questions will be released at 9am on Nov.11th. 
 
3. The second component of this assignment is for you to grade and correct your
own assignment. 
 There are 8 questions in total, each worth 1 mark. If your final answer is wrong,
you lose 1 mark. Write your grade on the top right corner of the assignment. 
 Use red fonts to correct your solutions on the original assignment. You need show
all the steps leading to the final answer. Please do not delete your original work. 
 If you score 100% on the first attempt, no corrections are necessary.
 Submit the updated assignment on Blackboard before 11:59pm on Nov.17th. 
 
4. I will grade your assignment based on both of your submissions. Detailed solutions will
be posted on Blackboard. 
 
Please note, due to the timeline of this assignment, late submission will not be accepted. If you
will miss the submission deadlines, please connect with me before the due date to discuss an
alternative solution. 

Please also note, the second component of this assignment is optional, but it will be counted
towards your participation mark.

BMTH120_99_Assignment 3
 My first attempt score: __5/8_______

Answer the following questions and only show BAII plus Calculator solution.
Please indicate the values for C/Y,P/Y, N, I/Y, PV, PMT and FV.

1. Lydia deposited $10,000 into a savings account at the beginning of every year for ten
years. The account was growing at 3% compounded monthly. After the ten-year period,
she left the accumulated money in the account to grow for another year.
a. What was the balance in the account at the end of 11 years?

C/Y= 12, P/Y = 10 years, n = 10, I = 3%, PMT = 10,000, PV/= 0, FV= 118,352.18
Correct answer = 121,951.97

b. What was the total interest earned?

Interest = FV (n X PMT)
= 121,951.9710 – (10,000 X 10)
= 121,951.9710 – 100,000
= $21,951.97

2. Liam has $30,000 in his RRSP account and wants this to accumulate to $250,000. The
account is earning 6.1%
compounded semi-annually and he plans to deposit $2500 at the beginning of every six
months into this account. How long will it take to achieve his goal?

C/Y=2, P/Y= 2, I/Y= 6.1%, PMT= 2500, PV= 30,000, FV= 250,000, N=?

J = 6.1% = 0.061, m= 2, i= j/m = 0.061/2 = 0.0305

FV = PV (1 + I)^n + PMT [(1+i)^n-1/i] (1+i)

FV= PV(1+i)^n+PMT(1+i)/i (1+i)^n – PMT(1+i)/i
i x FV = i x PV(1+i)^n+PMT(1+i)(1+i)^n-PMT(1+i)
i x FV + PMT(1+i) = [i x PV + PMT (1+i)](1+i)^n
i x FV + PMT (1+i)/ i x PV + PMT(1+i)= (1+i)^n
n= ln[i x FV + PMT(1+i)/ i x PV + PMT(1+i)]/ ln(1+i)
n= ln(0.0305 x 250000 + 2500(1+0.0305)/0.0305 x 30000 + 2500(1+0.0305)/
ln(1+0.0305)
n= 35.689….
n= 36

time period t = n/# of payments in a year

= 36/2
= 18 years
BMTH120_99_Assignment 3
 Correct answer = 17 years and 11 months

3. Lilly has been depositing $2000 into an RESP at the end of every three months to save
for her daughter's education. If the RESP earns 6% compounded monthly, how long will
it take for the investment to grow to $20,000?

C/Y= 12, P/Y= 4, I/Y= 6%, PMT= 2000, PV= 0, FV= 20,000, N=?

j = 6% = 0.06, m = 12
i=0.06/12 = 0.005
c=12/4
i2 = (1+i)^c-1
= (1+0.005)^12/4 – 1
= 0.015075

N= ln(1+ i2 x FV/PMT)/ln(1+i2)
N= ln(1+0.015075 x 20,000/ 2000)/ln(1+0.015075)
N= 9.384 ….
N= 10 payments
Correct answer = 2 years and 5 months

4. Raga Steel Corporation leased a furnace for $80,000 for ten years. Calculate the nominal
interest rate compounded semi-annually if $1000 was paid at the beginning of every
month and the residual value is $5000.

C/Y= 2, P/Y= 12, N=120, PMT=1000, PV=80,000, FV= 5000, I/Y=9.63966.. = 9.64%

5. A company borrowed $500,000 at 8.5% compounded daily. It settled the loan by paying
$6200 at the end of every month.

a. How many payments were required to settle the loan?

N=?
C= # of compounding periods per year/# of payments per year = 365/12
J= 8.5%=0.085, m=365
i=0.085/365=0.000232877
i2=(1+i)^c-1
= (1+0.000232877)^(365/12) – 1
= 0.0071076 monthly
n= - ln(1- i x PV/PMT)/ln)1+i)
n= - ln( 1- 0.0071076 x 500,000/6200)/ln(1+0.0071076)
BMTH120_99_Assignment 3
 n= 120.216…= 121 payments
b. What was the outstanding balance on the loan at the end of nine years?

Outstanding balance = Future Value (Original Loan) – Future Value (Payments made
until the focal date)

= 500,000(1+0.0071076)^108 – 6200[(1+0.0071076)^108 – 1/0.0071076]

= 1,074,401.49 – 1,002,100.49
= $72, 301
c. What was the size of the final payment?

= 500,000(1+0.0071076)^120 – 6200[(1+0.0071076)^120-1/0.0071076]
= 1,169,707.669 – 1,168,371.585
= 1,336.083503

= 1,336.083503(1+0.0071076)
= $1345.58

d. What was the total interest paid?

Interest Paid = (n X PMT) - PV

= [(120 x 6200) + 1345.58] – 500,000
= $245,345.58

6. Usman purchased a machine for $12,000 for his company. He paid 10% of this amount
as a down payment and financed the rest at 4.5% compounded monthly. He paid $1600
at the end of every month to settle the loan.

a. What was the principal portion of the 6th payment?

Loan amount = 12,000 – (12,000 x 0.1)

= 10,800

J=4.5%=0.045
m=12
i=0.045/12=0.00375

5th payment balance = PV (1+i)^n – PMT[(1+i)^n-1/i]

= 10,800(1+0.00375)^5 – 1600[(1+0.00375^5-1/0.00375]
= 11,004.02446 – 8,060.225
= $2943.799034

6th payment = $2943.799034 x 0.00375

= $11.04

BMTH120_99_Assignment 3
 Principal portion of the 6th payment = 1600- 11.04 = $1588.96

b. What was the interest portion of the 6th payment?

Interest = 1600 – 1588.96

= $11.04

7. A mortgage for a condo had a principal balance of $44,910 that had to be amortized
over the remaining period of 4 years. The interest rate was fixed at 4.5% compounded
semi-annually and payments were made monthly.

a. Calculate the size of the monthly payments if they are rounded up to the next $50.

C/Y= 2, P/Y= 12, N= 48, I/Y=4.5%, PV=44,910, FV=0, PMT=?

c= 2/12
j= 4.5%=0.045
m=2
i= 0.045/2=0.0225
i2= (1+i)^c – 1
= (1+0.0225)^(2/12) – 1
= 0.003715

PV = PMT [1-(1+i2)^-n/i2]
44,910 = PMT [1-(1+0.003715)-48/0.003715]
PMT= 1,023.26

Rounded up to the next $50, we get $1,050 monthly payments

N1= -ln(1- 0.003715 x 44,910/1050)/ln(1_0.003715)

= 46.6655.. = 47

Monthly payments at $1,200

N2=-ln(1- 0.003715 x 44,910/1200)/ln(1_0.003715)

= 40.371212…. = 40

# of monthly payments if they are rounded up to the next $50 would be 7 monthly
payments less.

BMTH120_99_Assignment 3
 b. If the monthly payments were set at $1200, what is the size of the final payment?

Principal Balance = 44,910(1+0.003715)^40 – 1200 [(1+0.003715)^40 – 1/ 0.003715]

= 52,091.29 – 51, 646.97

= $444.42

Final payment amount = 444.31(1+0.003715)

= $445.97

8. Kim purchased a $250,000 condominium in Halifax with a down payment of 25% of the
amount. She received a 20-year mortgage for the balance at a fixed interest rate of
4.75% compounded semi-annually for a three-year term. Payments were to be made at
the end of every month.

a. What is the size of the monthly payment?

C/Y= 2, P/Y=12, N=240, I/Y=4.75, PV= 187,500, FV=0, PMT = 1,206.93

b. What was the principal balance at the end of the three-year term?

J=4.75%=0.0475
M=2
i= 0.0475/2 = 0.023750

i2= (1+0.023750)^(2/12) – 1
= 0.003920

# of payments = 12 x 3 = 36 payments

Principal balance = 187,500(1+0.003920)^36 – 1206.93[(1+0.003920)^36 – 1/ 0.003920]

= 215,856.316 – 46,566.694
= $169,289.62

BMTH120_99_Assignment 3