Question

10-A student who wins a matriculation wants to save Money for his master's degree after 4 years. For this, the student must have 20,000 dollars at the end of 4 years. The annual interest rate is 14%. a) How much Money should this scholars deposit into the bank so that this student will be $ 20,000 after 4 years? b) If the student pays 4 equal amounts over 4 years, what should be the amount of each installment to accumulate $ 20,000? 11- Mr. X wants to buy a car. Theprice of the car is $ 40,000. He was also offered the following payment options. (i=%10) 1) Pay the amount in advanceand take advantage of the $ 1000 discount. II) Pay $5,500 every month for 12 months. Pay $2,250 every month for 10 months and pay $ 30,000 at the end of the 10. month.

Answer 1

Answer to Q#10 (First question in the list): a) 14% Annual interest rate, RATE # of years to maturity, NPER Annual deposit amount, PMT Maturity value at the end, FV Interest compounding type, TYPE Amount to be deposited today $0 $20,000 0 = 0 if compounded at the end of each year; 1 if compounded at the beginning of each year. $11,841.61 [Ref: NOTE] NOTE: Amount to be deposited today is calculated using EXCEL FUNCTION PV(rate,nper,pmt,fv,type) where rate=14%; nper=4; pmt=0; fv=--20000; type=0; Here, value for fv is negative as it denotes cash inflow; type = 0 because interest is compounded at the end of each year only. A C D E F G H I J K 1 Annual interest rate, RATE 14% 2 # of years to maturity, NPER 3 Annual deposit amount, PMT 4. Maturity value at the end, FV $20,000 5 Interest compounding type, TYPE 0 = 0 if compounded at the end of each year; 1 if compounded at the beginning of each year. 6 Amount to be deposited today =PV(B1,B2,B3,-B4,B5) [Ref: NOTE] $0

b) 14% Annual Interest rate, RATE # of annual deposits, NPER Initial investment, PV Target maturity value at the end, FV Annual installment type, TYPE Equal annual deposits required $0 $20,000 0 = 0 if deposits made at the end of each year; 1 if deposits made at the beginning of each year $4,064.10 [Ref: NOTE] NOTE: Equal annual deposits required is calculated using EXCEL FUNCTION PMT(rate,nper,pv,fv,type) where rate=14%; nper=4; pv=0; fv=-20000; type=0; Here, fv is negative as it denotes cash inflow; type=0 as deposits are made at the end of each year only. C D E F G H I J K 14% 4 $0 1 Annual Interest rate, RATE 2 # of annual deposits, NPER 3 Initial investment, PV 4 Target maturity value at the end, FV 5 Annual installment type, TYPE 6 Equal annual deposits required $20,000 0 = 0 if deposits made at the end of each year; 1 if deposits made at the beginning of each year =PMT(B1,B2,B3,-B4,B5) [Ref: NOTE]