Problems 83country without the approval of Congress. Assum-
ing the senator's math is correct, how much will the
foreign country have saved in interest when it repays
the bonds at 41/z% instead of 51/4% at the end of
30 years?
3-13 One thousand dollars is borrowed for one year at an in-
terest rate of 1% per month. If the same sum of money
could be borrowed for the same period at an interest
rate of 12% per year, how much could be saved in
interest charges?
3-14 A sum of moneyQwill be received 6 years from now.
At 5% annual interest. the present worth now ofQ
is $60. At the same interest rate, what would be the
value ofQin 10 years?
3-15 In 1995 an anonymous private collector purchased a
painting by Picasso entitledAngel Fernandez de Soto
for $29,152,000. The picture depicts Picasso's friend
deSoto seated in a Barcelona cafe drinking absinthe.
The painting was done in 1903 and valued then at
$600. If the painting was owned by the same fam-
ily until its sale in 1995, what rate of return did they
receive on the $600 investment?
3-16 (a)If $100 at Time "0" will be worth $110 a year
hence and was $90 a year ago, compute the inter-
est rate for the past year and the interest rate next
year.
(b)Assume that $90 invested a year ago will return
$110 a year from now. What is the annual interest
rate in this situation?3-17 How much must you invest now at 7.9% interest to
accumulate $175,000 in 63 years?
3-18 We know that a certain piece of equipment will cost
$150,000 in 5 years. How much will it cost today
using 10% interest?
3-19 The local garbage company charges $6 a month for
- ---- -garbage collection. It had been their practice to send
out bills to their 100,000 customers at the end of
each 2-month period. Thus, at the end of February it
would send a bill to each customer for $12 for garbage
collection during January and February.
Recently the firm changed its billing date: it now
sends out the 2-month bills after one month's service
has been performed. Bills for January-February, for
example, are sent out at the end of January. The local
newspaper points out that the firm is receiving half its
money before the garbage collection. This unearned
money, the newspaper says, could be temporarily in-
vested for one month at 1% per month interest by the
garbage company to earn extra income.
Compute how much extra income the garbage
company could earn each year if it invests the money
as described by the newspaper. (Answer: $36,000)
3-20 Sally Stanford is buying an automobile that costs
$12,000. She will pay $2000 immediately and the re-
maining $10,000 in four annual end-of-year principal
payments of $2500 each. In addition to the $2500, she
must pay 15% interest on the unpaid balance of the
loan each year. Prepare a cash flow table to represent
this situation.
- ---- -garbage collection. It had been their practice to send