FINANCIAL MATHEMATICS

PRACTICE No. 10
1 .- Juan Lugo makes an initial deposit of $8,000.00 in a bank account worth
$2,000.00 and then makes a deposit of $5,000.00 after 1½ years. You then withdraw
$2,850.00 at the end of each semester for the next 3 years, and then deposit $2,000.00
at the end of each semester for 4 years.
Determine the account balance after 10 years.

Solution
Current deposit = 11,000 S 1 = 2,850 i
1
nna = 4,768.62, ,
0.09 ,
S 1 = annuity amount with R = 2,850
S 2 = annuity amount with R = 2,000 S 2 = 2,000 i
0.09 - = 3,974.01
.
S = total amount requested after 10 years.
T = interest rate per semester = 9%

S = 11,000(1+0.09) 10 –c4,768.62(1+0.09) 6 + 3,974.01(1+0.09) 8 = 25,962.01

2 .- A woman deposits $2,000.00 at the end of each quarter for 4 years in a savings
account that pays 12% annually convertible quarterly. Then withdraw $7,000.00 at
the end of each quarter for one year, and then deposit $800.00 at the end of each
quarter for 1½ years. After those 6½ years, 1½ more years pass where the account
does not record deposits or withdrawals.
Determine the account balance after 8 years.

S 1 = 2,000I (1+0.12) 8 -1 ] =4,943.59

1
, 0.12 ,

S2 = 7.0001
0.12 1 = 9,826.16
S 3 = 800[ (1+0.12) 4.5
-1 1 = 1,323.87
3
0.12 ,
S = 4,943.59 (1+0.12) 8 – 9,826.16 (1+0.12) 3 + 1,323.87 (1+0.12) 4.5 = 639.68

3 .- Felipe Cuello owes Mario Melo the amount of $10,000.00 and agrees to pay him
$2,000.00 at the end of each of the next 4 two-month periods and a final payment at
the end of the sixth two-month period. What is the amount of the final payment, if
the interest rate is 30%, compounded bimonthly?
Solution
P = 10,000 R=? R = 2,000 y0.0 5 = 394.03
, 1-
(1+
0.0

5)-6

A = 2,000
J = 30%
M = 6 bimonthly
I = 5%
4 .- A loan of $32,000.00 at 12% annual convertible semiannual will be paid
through equal payments at the end of each semester for 3 years. Determine the value
of each payment and construct a debt amortization schedule.

Solution
A = 32,000 j = 12% m = 2 i = 6% n = 6 semesters R =
R- 32,000 x 0.06 = 16,507.60
i1-(1+0.06) -6 ]

PERIOD PAY INTEREST ON AMORTIZATION BALANCE

(SEMESTER) NEWSPAPER ($) BALANCE ($) ($) UNSOLUTE ($)
0 32,000.00
1 6,507.60 1,920.00 4,587.60 27,412.40
2 6,507.60 1,644.74 4,862.86 22,549.54
3 6,507.60 1,352.97 5,145.63 17,394.91
4 6,507.60 1,048.69 5,463.91 11,931.00
5 6,507.60 715.36 5,791.74 6,139.26
6 6,507.60 368.35 6,139.26 0.01

5 .- Juan Martínez should have paid $56,000.00 today to a financial company that
charges 24% compounded monthly, but since he could not fully comply with said
commitment, he renegotiated the debt by immediately paying 25% of it and agreeing
to pay the rest through 7 payments monthly due. Determine the value of each
payment and construct a debt amortization schedule.
41 .n, n 42,000 X0.02 , .
Solution j = 24% R= ------— = 6,429.20
[1-(1+0.02)-2 ,.
Debt value = 56,000 m = 12
Payment made = 25%/14,000 i = 2 R =?
Balance after payment = 56,000 – 14,000 = 42,000

PERIOD PERIODIC INTEREST ON AMORTIZATION BALANCE

(SEMESTER) PAYMENT ($) BALANCE ($) ($) UNSOLUTE ($)
0 42,000.00
1 6,489.50 840.00 5,649.20 36,350.50
2 6,489.50 727.01 5,762.49 20,588.01
3 6,489.50 611.76 5,877.74 24,710.27
4 6,489.50 494.20 5,995.30 18,714.97
5 6,489.50 374.30 6,115.20 12,599.77
6 6,489.50 251.99 6,327.51 6,362.26
7 6,489.50 127.26 6,362.26 0.00
6 .- A company must pay within 5 months the sum of $554,000.00 and to
accumulate said sum it is decided to constitute a fund through monthly deposits due,
placing them in an investment account that yields 24% per year convertible
monthly. Determine the amount of the 5 deposits and make a table showing how the
fund is accumulated.

Solution
S = 554,000 j = 24% m = 1.2 n = 5 i = 2% R =
PERIOD PAY INTEREST ON AMORTIZATION BALANCE
(SEMESTER) NEWSPAPER ($) BALANCE ($) ($) UNSOLUTE ($)
1 10,054.50 0.00 10,034.50 10,034.50
2 10,054.50 200.69 10,235.19 20,269.69
3 10,054.50 405.39 10,439.89 30,709.58
4 10,054.50 614.19 10,618.69 41,358.27
5 10,054.50 827.17 10,861.67 52,219.94
554,000 x0.02
R= [(1+0.02)5-1] 10,034.50

7 .- Sara Cueto intends to accumulate the sum of $80,000.00 to pay off a loan that
expires in one year. If to pay it you decide to establish a fund through bimonthly
deposits due in an account that yields 15% nominal bimonthly, determine the value
of the deposits and make a table showing the accumulation of the fund.

Solution
S = 80,000 j = 15% i = 2.5% n = 6 R =
R = 80,000 X0.025 = 1,723.59
[(1+0.025)6-1 ,.

PERIOD PERIODIC INTEREST ON AMORTIZATION BALANCE

(SEMESTER) PAYMENT ($) BALANCE ($) ($) UNSOLUTE ($)
1 1,723.59 0.00 1,723.59 1,723.59
2 1,723.59 43.09 1,766.68 3,490.27
3 1,723.59 87.26 1,810.85 5,301.12
4 1,723.59 132.53 1,856.12 7,157.24
5 1,723.59 178.93 1,902.52 9,059.76
6 1,723.59 226.49 1,950.08 11,009.84
8.- A person makes deposits of $12,500.00 at the end of each quarter in a bank
account that pays 12% convertible monthly. What balance will you have in your
account after 2 years?

Solution
R = 12,500 i = 1%
J = 12% s=?
M = 12
N = 24 quarters

S = 12,500+12,500(1+0.01) 1 +12,500(1+0.01) 2 +12,500(1+0.01) 3 $50, 755.01

9.- Luisa Gil took out a loan of $18,000.00 and paid it off through 24 monthly
payments due of $1,054.14. What annual rate, compounded quarterly, was
charged to the operation?

Solution [(1+1)24-1 ] 18,000

Yo 1,054.14
S=18,000 i = 17%
R=1,054.14
N = 24 j = 17x24 = 40%
I =?
M=4
J =?

10.- José Pineda wants to accumulate $78,000.00 in 3 years by making

quarterly deposits due in a bank account that pays 18% convertible
semiannually. Calculate the value of quarterly deposits.

Solution
_ 78,000 x0.09
A = 78,000 [1-(1+0.09)-6]
J = 18% 17,387.74
M=2
N=6
I = 9%
R=?

11.- An automobile loan of $150,000.00 is agreed to be paid in 4 years through

monthly installments due with interest at 34.8% annual convertible monthly.
Just after the twelfth payment has been made, it is agreed that the originally
established one. Determine the amount of the new quarterly payments.

Solution
A = 150,000 150,000 xO.029
i1-(1+0.029) -48 ]
J = 34.8% R 5,827.58
1
M = 12
N = 48 5,827.58x0.029
i1-(1+0.029) -16 ]
I = 2.9% R2 = = 460.40
R=?

12.- Determine the cash price of a refrigerator that can be purchased through
payments of $1,300.00 that are due at the beginning of each month for 1½ years,
if the interest rate is 18% convertible monthly.

Solution
R = 1,300
J = 18%
M = 12 Pc = 1,800I
0 015 = 64,992.34
N = 18 , 0.015 ,
I = 1.5%

13.- Lorenzo Luna must pay the sum of $46,000.00 today. Since he cannot fulfill
his commitment, he agrees to cancel his debt through eight equal annual
payments, beginning to pay immediately. Determine the value of those payments,
if the interest rate is 14% compounded annually.

Solution
A = 46,000
_ 46,000 X0.14 Pc
J = 14% = 9,916.22
i1-(1+0.14) -8 ]
M=1
N=8
I =14%

14.- What will be the amount of each of the 20 advance semiannual deposits that
will be placed in an investment fund that yields 9% convertible semiannually in
order to make a payment of $800,000.00 that matures exactly in 10 years?

Solution 800,000 X0.045

[1-(1+0.045)-20]
A = 800,000
J = 9%
M=2 = 61,500.91
N = 20
I = 4.5%
15 .- What quarterly convertible annual interest rate was charged on a debt of
$400,000.00, if it was settled through 10 advance quarterly payments of $44,476.69
each?
 Solution
A = 400,000 [1-(1+1)40] _ 400,000
Yo 44,416.69
R = 44,416.69 = 8.9
N = 40
M=4 i = 8.9%
I=?

16 .- Lourdes Astacio opened a savings account and set out to accumulate

$200,000.00 in 2 years through advance bimonthly deposits of $14,494.50 each.
What bimonthly convertible annual rate does the savings account pay?
Solution
A = 200,000 [ 1-(1+i) ~ 12 ] _ 200,000
Yo 14,494.50
R = 14,464.50 13.79
N = 12
M=6 i = 14%
I =?
17 .- A merchant sells knitting machines for $125,000.00 cash. To promote your
sales, you decide to offer them in 18 monthly payments, charging 24% annual
interest compounded monthly. What is the value of the monthly payments? a)
Without initial payment and b) With a fee as an initial payment.

Option “a”
A = 125,000 j =24% m = 12 n = 18 payments i =
125,000 x 0.02
= 8,337.76 2%
Option “b”
Start =
31,250
125,000 x 0.02
1 1-(1+0.02)-18]
[ 1-(1+0.02)-18]

a = 93,750 j = 24% m = 12 n = 18 payments i =

= 562.20 2%

18 .- Miguel Martínez owns a compact car valued at $400,000.00 and decides to

sell it, receiving the following offers: a) $50,000.00 down payment and 6 bimonthly
payments due of $65,000.00 each; and b) 12 monthly payments of $40,000.00 each,
making the first payment immediately. What is the best offer if the average return
on money is 12% effective?

Option “a”
Initial = 50,000
R = 65,000 vca = 50,000 + 65,000 1 - (1+0.02)
-6
= 57,281.86
, , , 0.02 ,

Option
“b” R =
40,000
I = 2%
 vcb = 40,000I 1 - (1+0.02) - 12
= 8,460.27
, 0.02 ,

option b is the most convenient

19.- What sum must be deposited at the beginning of each year, in a fund that pays
6% compounded annually, to provide for the replacement of a company's
equipment whose cost is $2,000,000.00, if its useful life is 5 years and its value
salvage is estimated at 10% of the cost?

Solution
A = 2,000,000
J =6% R = 2,000,000.06 = 474,792.80
[1-(1+0.06)-5 ,.
M=1
N=5
I = 6%

20.- In a store, a chair is sold for $4,600.00 in cash, or through monthly advance
payments of $511.69. If the interest is 29.40% compounded monthly, how many
payments do you need to make?

Solution A
= 4,600 R
4,600
= 511.69 -log V 511.69 y0.024 )
log(1+0.024)
J= 10.24
29.40% payments
M = 12
N=?
I = 2.4%
21.- A debt of $30,000.00 at 12% annually, capitalized semiannually, is agreed
to be paid through semiannual payments of $5,000.00 beginning immediately.
Find the number of installments and the value of an additional payment if
necessary.

Solution -log 1 -x0.06

30,000
A = 30,000 5,000
= 7.65
log(1+0.06)
R = 5,000 payments
J = 12% A 1 = 5,000! 1-(1+0.06)-9.65
= 29,971.72
M=2 1
, 0.06 ,
I = 6% 30,000 – 29,971.72 = 28.28
N=? Complementary payment = x = 28.28 (1+0.06) 8 =
45.07
22 .- Vicente Campos intends to accumulate the sum of $190,000.00 in 2 years and
to achieve this he will make deposits in a savings account that pays 10%
compounded quarterly. What amount must you deposit at the beginning of each
fortnight to accumulate said sum? How much would be earned in interest?
Solution 190,000 x0.025 . ee -e
[(1+0.025) 24 -1i = 2,625.75
S = 190,000
J = 10% it = 190,000 – 2,625.15 = 187,374.85
M=4
I = 2.5%
T = 2 years
N = 24
R=? 23 .- María Solano purchases a used car on credit valued at
It = ? $366,000.00, committing to pay off the debt through 18 bimonthly
payments of $27,441.89 beginning immediately. What annual rate
compounded biweekly was charged to the operation? What is the equivalent
effective rate?
Solution
A = 366,000 | (1+0)"-1 . = 366,000 = 13.33
,
Yo 27,447.89
R = 27,441.89
M=6
J=? i = 14% j = 84%
I=?

24 .- Rosa Peña opens a savings account with $12,000.00 and then deposits
$500.00 biweekly, starting 3 months after the initial deposit is made. If the interest
rate paid is 12.3% compounded monthly, what will be the accumulated amount 3
years after opening the account?
Solution
A = 12,000
J = 12.3% S = 12,000 [ (1+0.01) 36 -1 ] = 17,069.23
, 0.01 ,
M = 12
I = 1.0%
T = 3 years
N = 36

25 .- In a department store that has its Christmas offer of “buy now and start
paying in 4 months” a customer presents himself to buy a stove valued at
$14,600.00, which will be paid off (according to the promotion) through 8 monthly
payments . If the store charges an effective interest rate of 23%, what is the
amount of the monthly payment? What is the total interest to pay for the use of the
credit?

14,600 x0.019
R= = 237.62
Solution .
[(1+0.019)8-1
S = 14,603
J = 23%
M = 12 it = 14,600 – 237.62 = 14,362.38
I = 1.9%
N=8
payments
R=?
I=?
26 .- Mr. Rafael Casado becomes disabled as a result of an accident and decides to
make an investment that guarantees him an indefinite monthly income. If the
gentleman invests $600,000.00 in a fund that yields 15.6% nominal monthly, how
much will he receive monthly if he wishes to keep the invested capital intact?

Solution
R = 600,000 A = 600,000 I 1-(1+0.013) 12
= 53,291.62
J = 15.6% , 0.013 ,
M = 12
I = 1.3%