Exercise set #1 (correct answers in parentheses)
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Unless instructed otherwise, assume an effective interest rate of 10%
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1. You borrow $15,000 and agree to repay by five equal annual
   payments.
   a. What is the amount of each payment? (3957)
   b. What single payment in year 5 would be equivalent? (24158)
   c. What three equal annual payments in years 3, 4 and 5 would be
      equivalent? (7298)
   d. What two equal annual payments in years 2 and 3 would be
      equivalent? (9507)

2. Cash flows of 1000, 3000, and 5000 occur in years 2, 4 and 6
   respectively.
   a. What six equal annual cash flows starting in year 1 are
      equivalent? (1308)
   b. What three equal annual cash flows starting in year 7 are
      equivalent? (4059)

3. You plan to retire 30 years from now, and you expect to live 20
   years thereafter. You want annual retirement income of 50,000.
   What 30 equal annual deposits must you make, starting this year
   to be able to do this? (2588)

4. You borrow a certain amount now, and agree to repay with three
   annual payments of 10,000, 15,000 and 25,000 in years 5, 6 and
   7.
   a. How much did you borrow? (27505)
   b. What 3 equal annual payments in years 5, 6 and 7 would be
      equivalent? (16194)

5. You are trying to decide in which of two banks to deposit funds.
   Bank A pays interest at the rate of 6% per annum compounded semi-
   annually. Bank B compounds interest monthly. What is the nominal
   rate of interest Bank B would have to pay to make you indifferent
   to depositing in either bank? (5.926%)

6. You borrow 20,000 at the nominal rate of 8% per annum compounded
   quarterly. You agree to repay the loan with five equal annual
   payments. How much are these payments? (5041). What would the
   payments have been if interest were compounded annually? (5009)

7. Operating costs of a new machine are expected to be 500 the first
   year, increasing thereafter by 75 per year. The machine will be kept
   in use for 15 years. What is the uniform annual operating cost?
   (896)

8. Suppose the machine in the preceding question will have to be over-
   hauled in the eighth year at a cost of 15,000 in order to keep it in
   service for the remainder of its 15-year life. Now what is the
   uniform annual cost, including the overhaul cost? (1816)

9. A sanitary landfill site has just been purchased for 500,000. At
   projected infill rates, the site will reach maximum capacity in 8
   years, at which time, a new site (of equal capacity) will have to be
   purchased. Site prices are expected to inflate at 8% per annum. What
   uniform annual amount must be set aside in order that there be 
   sufficient funds to purchase a new site when the old one fills-up?
   (80932)

10. You borrow a certain amount, and agree to repay the lender 5276 per
    year for five years. What is the total amount of interest you will
    have paid on this loan? (6380)