The Lexington Property Development Company has a $10,000

The Lexington Property Development Company has a $10,000 note receivable from a customer due in three years.  How much is the note worth today if the interest rate is 

               a.  9%?

              b. 12% compounded monthly?

              c. 8% compounded quarterly?

              d. 18% compounded monthly?

              e. 7% compounded continuously?

What will a deposit of $4,500 left in the bank be worth under the following conditions:

              a. Left for nine years at 7% interest?

              b. Left for six years at 10% compounded semiannually?

              c. Left for five years at 8% compounded quarterly?

              d. Left for 10 years at 12% compounded monthly?

What interest rates are implied by the following lending arrangements?

              a. You borrow $500 and repay $555 in one year.

              b. You lend $1,850 and are repaid $2,078.66 in two years.

              c. You lend $750 and are repaid $1,114.46 in five years with quarterly compounding.

              d. You borrow $12,500 and repay $21,364.24 in three years under monthly compounding.

              (Note: In c and d, be sure to give your answer as the annual nominal rate.)

How long does it take for the following to happen?

              a. $856 grows into $1,122 at 7%.

              b. $450 grows into $725.50 at 12% compounded monthly.

              c. $5,000 grows into $6724.44 at 10% compounded quarterly.

Sally Guthrie is looking for an investment vehicle that will double her money in five years. 

              a. What interest rate, to the nearest whole percentage, does she have to receive?

              b. At that rate, how long will it take the money to triple?

              c. If she can’t find anything that pays more than 11%, approximately how long will it take to double her investment?

Branson Inc. has sold product to the Brandywine Company, a major customer, for $20,000.  As a courtesy to Brandywine, Branson has agreed to take a note due in two years for half of the amount due, and half in cash. 

              a. What is the effective price of the transaction to Branson if the interest rate is: (1) 6%, (2) 8%,                  (3) 10%, (4) 12%?

John Cleaver’s grandfather died recently and left him a trunk that had been locked in his attic for years.  At the bottom of the trunk John found a packet of 50 World War I “liberty bonds” that had never been cashed in.  The bonds were purchased for $11.50 each in 1918, and pay 3% interest as long as they’re held.  (Government savings bonds like these accumulate and compound their interest unlike corporate bonds, which regularly pay out interest to bondholders.)

              a. How much are the bonds worth in 2007?

              b. How much would they have been worth if they paid interest at a rate more like that paid during the 1970s and 80s, say 7%?

Paladin Enterprises manufactures printing presses for small-town newspapers that are often short of cash.  To accommodate these customers, Paladin offers the following payment terms: 

                       1/3 on delivery

                       1/3 after six months

                       1/3 after 18 months

         The Littleton Sentinel is a typically cash-poor newspaper considering one of Paladin’s presses

             a. What discount is implied by the terms from Paladin’s point of view if it can invest excess funds at 8% compounded quarterly?

             b. The Sentinel can borrow limited amounts of money at 12% compounded monthly.  What discount do the payment terms imply to the Sentinel?

Charlie owes Joe $8,000 on a note which is due in five years with accumulated interest at 6%.  Joe has an investment opportunity now that he thinks will earn 18%.  There’s a chance, however, that it will earn as little as 4%.  A bank has offered to discount the note at 14% and give Joe cash that he can invest today.

     a. How much ahead will Joe be if he takes the bank’s offer and the investment does turn out to yield 18%?

     b. How much behind will he be if the investment turns out to yield only 4%?

 Ralph Renner just borrowed $30,000 to pay for a new sports car.  He took out a 60 month loan and his car payments are $761.80 per month.  What is the effective annual interest rate (EAR) on Ralph’s loan?

 How much will $650 per year be worth in eight years at interest rates of

              a.   12%

              b.    8%  

              c.    6%

   The Wintergreens are planning ahead for their son’s education.  He’s eight now and will start college in 10 years.  How much will they have to set aside each year to have $65,000 when he starts if the interest rate is 7%?

.  What interest rate would you need to get to have an annuity of $7,500 per year accumulate to $279,600 in 15 years?

 How many years will it take for $850 per year to amount to $20,000 if the interest rate is 8%?  Interpolate and give an answer to the nearest month.

   A $10,000 car loan has payments of $361.52 per month for three years.  What is the interest rate?  Assume monthly compounding and give the answer in terms of an annual rate.

   Joe Ferro’s uncle is going to give him $250 a month for the next two years starting today.  If Joe banks every payment in an account paying 6% compounded monthly, how much will he have at the end of three years?

.  How long will it take a payment of $500 per quarter to amortize a loan of $8,000 at 16% compounded quarterly?  Approximate your answer in terms of years and months.  How much less time will it take if loan payments are made at the beginning of each month rather than at the end?