Answer to Question #160344 in Financial Math for Kate

Question

Identify if the following problem describes an interest or an annuity.

Write I for interest and A for annuity.

_____1. Suppose you invest Php10,000 for 3 years at an annual simple interest rate

of 5.5%. How much will be in your account at the end of 3 years?

_____2. Suppose you deposit Php1,000 every six months into an account that pays

6% compounded semi-annually. If you make 6 deposits, one at the end of each

interest payment period, over 3 years, how much money will be in the account after

the last deposit made?

_____3. In order to accumulate enough money for a downpayment on a home, a

couple deposits Php15,000 per month into an account paying 6% compounded

monthly. If payments are made at the end of each period, how much money will be in

the account in 5 years?

_____4. A person wishes to have Php20 million in an account for retirement 15

years from now. How much money should be deposited quarterly in an account

paying 8% compounded quarterly.

_____5. How much should you invest at 6% annual interest rate to obtain a simple

interest of Php72,000 in 3 years?

Answer 1

In an annutity, a fixed sum of money is invested in an account on a regular schedule, such as, monthly, quarterly and yearly and left to earn interest. As an example, if a monthly schedule is chosen, then a fixed amount is invested into the account every month. However, under an interest, a fixed amount of money is invested once and left to earn interest until maturity or until it is withdrawn from the account. An interest cannbe simple or compound.

1. An Interest

Php 10,000 was invested once and left to earn interest for three years.

2. An Annuity

Php 1,000 is deposited on a regular schedule of six months for 3 years.

3. An Annuity

The couple deposits Php 15,000 on a regular schedule of one month. The finance option involves a constant monthly deposit of Php 15,000 up to five years.

4. An annuity

Deposits are required to be made quarterly, that it, there are regular and constant deposits into the account every quarter year for fifteen years.

5. An Interest

The amount required to be invested should be deposited once. The single and fixed deposit should raise Php 72,000 in three years.