FINANCE & BANKING CHAPTER 3
FINANCE ( CHAPTER 3
MATH APPLICATION TEST
1. Calculate the simple interest and compound interest for each of the investments using the information from the table. (15 Points)
|AMOUNT INVESTED |INTEREST |LENGTH OF INVESTMENT |COMPOUND |SIMPLE INTEREST |COMPOUND INTEREST |
| |RATE | |PERIOD | | |
|$400 |2.0% |3 Years |Annual |a.) $24.00 |f.) $24.48 |
|$20,000 |5.5% |1 Year |Quarterly |b.) $1,100.00 |g.) $1,122.89 |
|$50,000 |4.0% |2 Years |Quarterly |c.) $4,000.00 |h.) $4,143.53 |
|$300,000 |6.5% |1 Year |Quarterly |d.) $19,500.00 |i.) $19,980.47 |
|$750,000 |3.5% |3 Years |Annual |e.) $78,750.00 |j.) $81,538.41 |
1f.
(1) $400.00 * .02 = $8.00
(2) $408.00 * .02 = $8.16
(3) $416.16 * .02 = $8.32
$8.00 + $8.16 + $8.32 = $24.48
1g.
5.5% ( 4 (Quarterly) = 1.375%
(1) $20,000.00 * .01375 = $275.00
(2) $20,275.00 * .01375 = $278.78
(3) $20,553.78 * .01375 = $282.61
(4) $20,836.39 * .01375 = $286.50
$275.00 + $278.78 + $282.61 + $286.50 = $1,122.89
1h.
4% ( 4 (Quarterly) = 1%
(1) $50,000.00 * .01 = $500.00
(2) $50,500.00 * .01 = $505.00
(3) $51,005.00 * .01 = $510.05
(4) $51,515.05 * .01 = $515.15
(5) $52,030.20 * .01 = $520.30
(6) $52,550.50 * .01 = $525.50
(7) $53,076.00 * .01 = $530.76
(8) $53,606.76 * .01 = $536.07
$500.00 + $505.70 + $510.05 + $515.15 + $520.30 + $525.50 + $530.76 + $536.07 = $4,143.53
1i.
6.5% ( 4 (Quarterly) = 1.625%
(1) $300,000.00 * .01625 = $4,875.00
(2) $304,875.00 * .01625 = $4,954.21
(3) $309,829.21 * .01625 = $5,034.72
(4) $314,863.93 * .01625 = $5,116.54
$4,875.00 + $4,954.21 + $5,034.72 + $5,116.54 = $19,980.47
1j.
(1) $750,000.00 * .035 = $26,250.00
(2) $776,250.00 * .035 = $27,168.75
(3) $803,418.75 * .035 = $28,119.66
$26,250.00 + $27,168.75 + $28,119.66 = $81,538.41
2. What is the formula for calculating the future value of a loan or investment with compound interest? (1 Point)
FV = P (1 + i)n
FV = future value of the investment or loan, P = principal, i = interest rate per period of compounding, and n = number of compounding periods in the length of the loan.
3. If $200,000 is borrowed today to replace outdated equipment and the terms are 6 percent for 3 years compounded quarterly, what is the total cost of the purchase? (3 Points)
FV = P (1 + i)n
i = .015 (6% ( 4 (quarterly) = 1.5% or .015)
n = 12 (3 years * 4 (quarterly))
FV = $200,000 (1 + .015)12
FV = $200,000 (1.015)12
FV = $200,000 (1.2)
FV = $240,000
4. If $100,000 is invested today and the terms are 5 percent for 3 years compounded yearly, what is the future value of the investment? (3 Points)
FV = P (1 + i)n
i = .05 (5% or .05)
n = 3 (years)
FV = $100,000 (1 + .05)3
FV = $100,000 (1.05)3
FV = $100,000 (1.16)
FV = $116,000
5. What is the total interest earned from this transaction? Express as a formula also. (2 Points)
I = FV – P
I = $116,000 – $100,000
I = $16,000
Cash Payments = $11,500, Cash Receipts = $13,000, Gross Profit = $90,000, Total Assets = $10,500, Total Liabilities = $4,000, Total Operating Expenses = $50,000.
Given the financial information, calculate the Owner’s Equity, Net Income, and Net Cash Flow:
6. Calculate the Owner’s Equity (2 Points).
Assets = Liabilities + Owner’s Equity
Owner’s Equity = Assets – Liabilities
Owner’s Equity = $10,500 – $4,000
Owner’s Equity = $6,500
7. Calculate the Net Income (2 Points).
Net Income = Gross Profit – Total Operating Expenses
Net Income = $90,000 – $50,000
Net Income = $40,000
8. Calculate the Net Cash Flow (2 Points).
Net Cash Flow = Cash Receipts – Cash Payments
Net Cash Flow = $13,000 – $11,500
Net Cash Flow = $1,500
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