Tutorial 1

1. After earning your degree, you wish to establish a scholarship fund for the Faculty
of Engineering students. If your salary allows you to put aside $400 each month
in a high-interest bank account with 12% interest (compounded monthly), and you
intend for the scholarship to be paid out in 4 years, how much will the scholarship
be worth?

2. Netlink, a satellite TV service provider, sells its Movie & Sport package in two
different ways: a monthly or an annual contract. If the package is bought on a
monthly basis, it costs $39.95 per month. However, if it is bought on an annual
basis, then the price is $439.95 paid at the end of the year.
If you plan to subscribe to this service for one year, which payment option would
you choose and why? (Assume the interest rate is 12% per year, compounded
monthly).

3. Question 2 continued. What is the present worth of the monthly contract?

4. A retailer offers financing on a $3400 home theatre system over a period of 36

months at a nominal interest rate of 24%, compounded monthly. How much are
your monthly payments if you provide a down payment of $500?

5. Heddy is considering working on a project that will cost her $20000 today. It will
pay her $10,000 at the end of each of the next 12 months and cost her another
$15,000 at the end of each quarter. An extra $10000 will be received at the end of
the project, one year from now. Illustrate these cash flows in two cash flow
diagrams. The first should show each cash flow element separately, and the second
should show only the net cash flow in each period.

6. Illustrate the following cash flow over 12 month in a cash flow diagram. Show only
the net cash flow in each period.
Cash Payment $20 every three months, starting now
Cash Receipts Receive $30 at the end of the first month and from that point on
receive 10 percent more than the previous month at the end of each
month.