Math 179 – Finance Practice Test KEY

1.  The equation models an investment of $ _1000_, invested at _6.5_% simple interest, for __6___ years. The balance in the account at that time will be $__1390__. (Simple interest: No TVM Solver)

2.  The equation 10,000 models a loan of $_10,000____, borrowed at _5.2_% interest, compounded _quarterly, to be paid _quarterly for _3_ years. (NAP ÷ P/Y)

The size of payment needed is $_905.42_.

N = 12 I% = 5.2 PV = 10000 Pmt = ? FV = 0 (loan) P/Y = C/Y = 4 END

3.  The equation 1,000,000 = Pmt models a retirement annuity account paying _10__% interest, compounded _month__ly. Payments of $__4881.74__ will be made __month___ly for

__10___ years. (NAP 120 ÷ P/Y 12) The balance at retirement will be $_1,000,000_____.

N = 120 I% = 10 PV = 0 Pmt = ? FV = 1000000 P/Y = C/Y = 12 END

4.  Interpret the following TVM Solver screen.

N = 16
I% = 6
PV = - 8000
Pmt = 0
FV = ?
P/Y = 4
C/Y = 4 / This screen models an investment or loan (circle one) of $ _8000_____, at __6___% interest, compounded _quarter__ly for __4__ years. (N = 16 quarters) Interest is paid / charged on a _month_ly basis. The balance at the end is $ __10,151.88____.

5.  The equation FV = 120 models an annuity with _week______ly payments of $_120______made into an account earning _4.5__% interest, compounded _week______ly, for ___2___ years. (104 ÷ 52) The account will have a balance of $__13,052.93____at that time.

N = 104 I% = 4.5 PV = 0 Pmt = -120 FV = ? P/Y = C/Y = 52 END

6. / 4.1% cpd monthly / On the calculator: Finance ↕Eff(%, C/Y). Homescreen – Use Annual Yield formula
Eff(4,52) = 4.079% annually; Eff(4.1, 12)= 4.178% annually (Higher)
7. / Pmt = $ 83.92 / Add-on loan →simple interest→NO TVM Solver. FV = 950(1 + 0.06 X 1) = 1007.
Pmt = 1007 ÷ 12
8. / Bal = $ 2672.54 / N = 6x1=6 I% = 4.1 PV = 2100 Pmt = 0 FV = ? P/Y = C/Y = 1 (annually) END
9. / Bal = $ 8756.65 / N = 8x12 = 96 I% =4.8 PV = 0 Pmt = -75 FV = ? P/Y = C/Y = 12 END
10. / Deposit $ 2,583.36
Interest = $ 67,416.64 / N = 25x365 = 9125 I% = 13.2 PV = ? Pmt = 0 (deposit now = no pmt)
FV = 70000 P/Y = C/Y = 365 END Interest = 70000 – 2583.36
11. / Bal = $ 340,768.85
Interest = $ 265,768.85 / N = 30 I% = 9 PV = 0 Pmt = -2500 FV = ? P/Y = C/Y = 1 (annually) END
Interest = FV – Paid = 340768.85 – (2500 x 30)
12. / Pmt = $ 590.55
Interest = $ 125,598 / N = 30x12 = 360 I% = 7.2 PV = 87000 Pmt = ? FV = 0 (loan) P/Y = C/Y = 12 END
Interest = Paid – PV (loan) = (360 x 590.55) - 87000
13. / Deposit $ 59.14 per month (or $ 60) / N = 18x12 = 216 I% = 8.5 PV = 0 Pmt = ? FV = 30000 P/Y = C/Y = 12 END
14. / Bal = $ 2235.67 / Simple interest → NO TVM Solver. FV = 1900 ( 1 + .053 x 40 ÷ 12)
Time must be in years → 40 months ÷ 12 months per year
15. / OMIT
Fall 2011
16. / Car priced at
$ 20,911.85 / N = 5x12= 60 I% = 4.2 PV = ? Pmt = -350 FV = 0 P/Y = C/Y = 12 END
Ken can afford a loan (PV) of $ 18,911.85. Loan + Down payment = Price of car

17.

Pmt number / Payment Size / Interest Pmt / Principal pmt / Balance
0 / X / X / X / 70,000
1 / 547.98 / 415.63 / 132.36 / 69,867.65
2 / 547.98 / 414.84 / 133.14 / 69,734.51
3 / 547.98 / 414.05 / 133.93 / 69,600.58

For pmt # 1:

Calculate the interest owed using I = Prt → I = 70000 x 0.07125 x = 415.63 ( because time is in years and one month is of a year.)

Calculate the amount that goes toward the loan (principal pmt) by subtracting the interest pmt from the pmt size (the check Kolby mailed in). 547.98 – 415.63 = 132.36

Subtract the principal pmt from the old balance to find the new balance: 70000 – 132.36 = 69867.65

For pmt # 2:

Same calculations, but use the new balance in step one. I = 69867.65 x 0.07125 x = 414.84