- Compute the annual deposit corresponding to this future value
Obtain the SFP factor from the interest table for / = 3 percent, n = 5 and substitute in the
relation ^ - S(SFP) - $95,485(0.18835) = $17,985.
PRESENT WORTH OF A UNIFORM SERIES
An inventor is negotiating with two firms for assignment of rights to a patent. The ABC
Corp. offers an annuity of 12 annual payments of $15,000 each, the first payment to be
made 1 year after sale of the patent. The DEF Corp. proposes to buy the patent by making
an immediate lump-sum payment of $120,000. If the inventor can invest the capital at 10
percent, which offer should be accepted?
Calculation Procedure:Compute the present worth of the annuity, using an interest rate
of 10 percent
Obtain the USPW factor from an interest table for / = 10 percent, n = 12 and substitute in
the relation P = R(USPW) = $15,000(6.814) = $102,210. Since the DEF Corp. offered an
immediate payment of $120,000, its offer is more attractive than the offer made by ABC
Corp.CAPITAL-RECOVERY DETERMINATION
On January 1 of a certain year a company had a bank balance of $58,000. The company
decided to allot this money to an improvement program by making a series of equal pay-
ments 4 times a year for 5 years, beginning on April 1 of the same year. If the account
earned interest at 4 percent compounded quarterly, what was the amount of the periodic
payment?
Calculation Procedure:- Compute the true interest rate and number of interest periods
Since the annual rate = 4 percent and there are four interest periods per year, the rate per
period is / = 4 percent/4 = 1 percent. And with a 5-year pay period, the number of interest
periods = 5 years (4 periods per year) = 20 periods. - Compute the uniform payment, i.e., capital recovery
The present worth of the sum is $58,000. Obtain the CR factor from an interest table for /
= 1 percent, n = 20 and substitute in the relation R = P(CR) = $58,000(0.05542) =
$3214.36.
EFFECTIVE INTEREST RATE
An account earns interest at the rate of 6 percent per annum, compounded quarterly.
Compute the effective interest rate to four significant figures.