Question 1

Suppose you borrowed $15,000 at a rate of 8.5% and must repay it in 5 equal installments at the end of each of the next 5 years.By how much would you reduce the amount you owe in the first year?
A) $2,404.91
B) $2,531.49
C) $2,658.06
D) $2,790.96
E) $2,930.51

Accepted Answer

Interest rate&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp8.5%
Years&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp5
Amaunt borvwed&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp$\$ 15000$ Step 1: Find the PMT&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp$3,806.49$
Step 2: Fint the lst year's interest&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp$1,275.00$ 
Step 3: Subtract the interest fram the payment; this is repayment of  principal&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp$2,531.49$

Question 2

Partners Bank offers to lend you $50,000 at a nominal rate of 5.0%,simple interest,with interest paid quarterly.An offer to lend you the $50,000 also comes from Community Bank,but it will charge 6.0%,simple interest,with interest paid at the end of the year.What's the difference in the effective annual rates charged by the two banks?
A) 1.56%
B) 1.30%
C) 1.09%
D) 0.91%
E) 0.72%

Accepted Answer

Students must understand that "simple interest with interest paid quarterly" means that the bank gets the interest at the end of each quarter,hence it can invest it,presumably at the same nominal rate.This results in the same effective rate as if it were stated as "6%,quarterly compounding."
 Namingl rate, Perters&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp$5.0 \%$
Periodislyr, Partners&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp4
Naminal rate, Cammurity&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp6.0%
Peridis y, Cammurity&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp1
$\mathrm { EFF } \%$ Partners&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp5.09%
EFF% Commurity&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp6.00%
Difference&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp0.91%

Question 3

Your Green Investment Tips subscription is about to expire.You plan to subscribe to the magazine for the rest of your life,and you can renew it by paying $85 annually,beginning immediately,or you can get a lifetime subscription for $850,also payable immediately.Assuming that you can earn 6.0% on your funds and that the annual renewal rate will remain constant,how many years must you live to make the lifetime subscription the better buy?
A) 7.48
B) 8.80
C) 10.35
D) 12.18
E) 14.33

Accepted Answer

Find N for an annuity due with the indicated terms to determine how long you must live to make the lifetime subscription worthwhile.BEGIN Mode
 Interest rate (I/YR)&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp$6.0 \%$
Annual cost (PMT)&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp$85
Ifetine subscription cost (PV)&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp$850
Number of payments mede (N)&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp $14.35$

Question 4

Billy Thornton borrowed $20,000 at a rate of 7.25%,simple interest,with interest paid at the end of each month.The bank uses a 360-day year.How much interest would Billy have to pay in a 30-day month?
A) $120.83
B) $126.88
C) $133.22
D) $139.88
E) $146.87

Accepted Answer

$$\begin{array} { l r l r } 
\text { Namungl IYR } & 7.25 \% & \text { Days in manth } & 30 \
\text { Dayshy } & 360 & \text { Drily rate } & 0.020139 \% \
\text { Amaunt borrowed } & \$20,000 & \text { Interest per day } & \$4.0278 \
\text { Interest per manth } = \text { Interest/day } \times 30 = & \$ 120.83 & &
\end{array}$$

Question 5

Suppose you deposited $5,000 in a bank account that pays 5.25% with daily compounding based on a 360-day year.How much would be in the account after 8 months,assuming each month has 30 days?
A) $5,178.09
B) $5,436.99
C) $5,708.84
D) $5,994.28
E) $6,294.00

Accepted Answer

$\begin{array}{lrl}
\text { Nominal I/YR } & 5.25 \% & \text { Rate/day }=r_{\text {Nom }}/ 360= 0.0146\%\
\text { Number of months } & 8 & \text { Days }=\text { Months } \times 30=240 \
\text { Days in year } & 360 & \
\text { Days in month } & 30 & \
\text { Amount deposited } & \$ 5,000 & \
\end{array}$
$\text { Ending amount }$ &nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp$5,178.09

Question 6

Suppose you borrowed $14,000 at a rate of 10.0% and must repay it in 5 equal installments at the end of each of the next 5 years.How much interest would you have to pay in the first year?
A) $1,200.33
B) $1,263.50
C) $1,330.00
D) $1,400.00
E) $1,470.00

Accepted Answer

$$\begin{array} { l r } 
\text { IYR } & 10.0 \% \
\text { Years } & 5 \
\text { Amaunt borrawed } & \$ 14,000 \
\text { Interest in Year } 1 & \$1,400.00 \
\text { Simply multiply the rate times the mant borrawra }
\end{array}$$

Question 7

Suppose you borrowed $15,000 at a rate of 8.5% and must repay it in 5 equal installments at the end of each of the next 5 years.How much would you still owe at the end of the first year,after you have made the first payment?
A) $10,155.68
B) $10,690.19
C) $11,252.83
D) $11,845.09
E) $12,468.51

Accepted Answer

Interest rate&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp8.5%
Years&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp5
Amaunt borvwed&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp$\$ 15000$ $\begin{array}{lll}
\text { Step 1: } & \text { Find the PMT } & \$ 3,806.49 \
\text { Step 2: } & \text { Find the 1st year's interest } & \$ 1,275.00 \
\text { Step 3: } & \text { Subtract the interest from the payment; this is repayment of principal  } & \$ 2,531.49 \
\text { Step 4:} & \begin{array}{l}
\text { Subtract the repayment of principal from the beginning amount } \
\text { owed }
\end{array} & \$ 12,468.51
\end{array}$

Question 8

You are considering investing in a European bank account that pays a nominal annual rate of 18%,compounded monthly.If you invest $5,000 at the beginning of each month,how many months would it take for your account to grow to $250,000? Round fractional months up.
A) 23
B) 27
C) 32
D) 38
E) 44

Accepted Answer

BEGIN Mode
 $\begin{array}{lrl}
\text { I/YR } & 18.0 \% \
\text { I/MO } & 1.5 \% & \text { Monthly annuity due, so interest must be calculated on monthly basis } \mathrm{r}_{\mathrm{NOM}} / 12 .  \
\text { PV } & \$ 0 \
\text { PMT } & \$ 5,000 & \
\text { FV } & \$ 250,000 & \
\mathrm{~N} & 37.16 & \text { Rounded up: } 38
\end{array}$

Question 9

Your cousin will sell you his coffee shop for $250,000,with "seller financing," at a 6.0% nominal annual rate.The terms of the loan would require you to make 12 equal end-of-month payments per year for 4 years,and then make an additional final (balloon)payment of $50,000 at the end of the last month.What would your equal monthly payments be?
A) $4,029.37
B) $4,241.44
C) $4,464.67
D) $4,699.66
E) $4,947.01

Accepted Answer

Monthly annuity,so interest must be calculated on a monthly basis. $$\begin{array} { l r l r } 
\text { Years } & 4 & \text { Paymentshyear } & 12 \
\mathbf { N } & 48 & \text { Naminal rate } & 6.0 \% \
\text { PV } & \$ 250,000 & \text { Iperiod } & 0.5 \% \
\text { FV } & \$50,000 & \text {PMT } & \$4,947.01
\end{array}$$

Question 10

Your bank offers to lend you $100,000 at an 8.5% annual interest rate to start your new business.The terms require you to amortize the loan with 10 equal end-of-year payments.How much interest would you be paying in Year 2?
A) $7,531
B) $7,927
C) $8,323
D) $8,740
E) $9,177

Accepted Answer

Find the required payment:
 $
\begin{array}{r}
N&&10 \
I&&8.5 \% \
PV&&\$ 100,000 \
FV&&\$ 0\
PMT & &  \$ 15,62411Found with a calculator or Excel
\end{array}
$
 
Amortization schedule (first 2 years)
 11ea42d0_c06f_e200_9abf_2723c3cd3036_TB2090_00

Question 11

Suppose you are buying your first home for $145,000,and you have $15,000 for your down payment.You have arranged to finance the remainder with a 30-year,monthly payment,amortized mortgage at a 6.5% nominal interest rate,with the first payment due in one month.What will your monthly payments be?
A) $741.57
B) $780.60
C) $821.69
D) $862.77
E) $905.91

Accepted Answer

$$\begin{array}{l}
\begin{array} { l r l } 
\text { Years } & 30 & \mathrm {~N}&360 \
\text { Paymentslyear } & 12 & \text { Periodic rat }&0.54\% \
\text { Naminal rate } & 6.50 \% & \mathrm { PV }&\$130.000 \
\text { Purchase price } & \$ 145,000 & \mathrm { FV }&\$0.00 \
\text { Dam payment } & \$ 15,000 & \text { PMT }&\$821.69
\end{array}\
\begin{array} { r } 
\end{array}
\end{array}$$

Question 12

Suppose you borrowed $12,000 at a rate of 9.0% and must repay it in 4 equal installments at the end of each of the next 4 years.How large would your payments be?
A) $3,704.02
B) $3,889.23
C) $4,083.69
D) $4,287.87
E) $4,502.26

Accepted Answer

$$\begin{array} { l r } 
\text { Years } = \mathrm { N } & 4 \
\text { I/YR } & 9.0 \% \
\text { FV } & \$ 0 \
\text { Amount borrowed } = \mathrm { PV } & \$ 12,000 \
\text { Payments } = \text { PMT } & \$ 3,704.02 \quad \text { Found with a calculatar, as the PMT. }
\end{array}$$

Question 13

You just deposited $2,500 in a bank account that pays a 4.0% nominal interest rate,compounded quarterly.If you also add another $5,000 to the account one year (4 quarters)from now and another $7,500 to the account two years (8 quarters)from now,how much will be in the account three years (12 quarters)from now?
A) $15,234.08
B) $16,035.88
C) $16,837.67
D) $17,679.55
E) $18,563.53

Accepted Answer

$$\begin{array} { l r c c c } 
\text { Interest rate } & 4.0 \% & & & \
\text { Periodslyear } & 4 & \text { Years an } & \text { Quarters } & \text { Ending } \
\text { Quarterly rate } & 1.0 \% & \frac { \text { Deposit } } { } & \frac { \text { an Deposit } } { } & \underline { \text { Amaunt } } \
\text { 1st deposit } & \$ 2,500 & 3 & 12 & \$ 2,817.06 \
\text { Znd deposit } & \$ 5,000 & 2 & 8 & \$ 5,414.28 \
\text { Grd deposit } & \$ 7,500 & 1 & 4 & \$ 7,804.53
\end{array}$$

Question 14

Suppose your credit card issuer states that it charges a 15.00% nominal annual rate,but you must make monthly payments,which amounts to monthly compounding.What is the effective annual rate?
A) 15.27%
B) 16.08%
C) 16.88%
D) 17.72%
E) 18.61%

Accepted Answer

$\mathrm { Namingl } \mathrm { IVR } = \mathrm { APR }$&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp$15.00 \%$
Periadstyr&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp12
$\mathrm { EFFD } / \mathrm { q } = \left( 1 + \left( \mathrm { I } _ { \mathrm { NOM } } / \mathrm { N } \right) \right) ^ { \mathrm { N } - 1 } =$&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp$16.08 \%$

Question 15

The store where you bought new home furnishings offers you two alternative payment plans.The first plan requires a $4,000 immediate up-front payment.The second plan requires you to make monthly payments of $137.41,payable at the end of each month for 3 years.What nominal annual interest rate is built into the monthly payment plan?
A) 12.31%
B) 12.96%
C) 13.64%
D) 14.36%
E) 15.08%

Accepted Answer

$\begin{array}{lr}\
\text { N } &36\
\text { PV } & \$ 4,000 \
\text { PMT } & \$ 137.41 \
\text { FV } & \$ 0 \
\text { I/MO } & 1.20 \%
\end{array} \text { Monthly annuity, so interest must be calculated on monthly basi }$
$\mathrm{I} / \mathrm{YR}=\mathrm{I} / \mathrm{MO} \times 12=14.36\%$

Question 16

Pacific Bank pays a 4.50% nominal rate on deposits,with monthly compounding.What effective annual rate (EFF%)does the bank pay?
A) 3.72%
B) 4.13%
C) 4.59%
D) 5.05%
E) 5.56%

Accepted Answer

Naminal I/YR&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp$4.50 \%$
Periodis/yr&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp12
Periodic rate &nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp0.38%
$\mathrm { EFFE } / = ( 1 + ( \mathrm { r } _\mathrm { NOM } / \mathrm { N } ) ) ^ { \mathrm { N } - 1 } = \quad 4.59 \%$

Question 17

You plan to borrow $35,000 at a 7.5% annual interest rate.The terms require you to amortize the loan with 7 equal end-of-year payments.How much interest would you be paying in Year 2?
A) $1,994.49
B) $2,099.46
C) $2,209.96
D) $2,326.27
E) $2,442.59

Accepted Answer

Find the required payment:
 $
\begin{array}{r}
N&&7 \
I&&7.5 \% \
PV&&\$ 35,000 \
FV&&\$ 0\
PMT & &  \$ 6,608.01Found with a calculator or Excel
\end{array}
$
 
Amortization schedule (first 2 years)
 11ea42d0_c06f_baee_9abf_63c03d470dea_TB2090_00

Question 18

Your older brother turned 35 today,and he is planning to save $7,000 per year for retirement,with the first deposit to be made one year from today.He will invest in a mutual fund that's expected to provide a return of 7.5% per year.He plans to retire 30 years from today,when he turns 65,and he expects to live for 25 years after retirement,to age 90.Under these assumptions,how much can he spend each year after he retires? His first withdrawal will be made at the end of his first retirement year.
A) $58,601
B) $61,686
C) $64,932
D) $68,179
E) $71,588

Accepted Answer

Interest rate&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp7.5%
Years to retirement&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp30
Years in retirement&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp25
Amaunt saved per year&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp$7,000
 Step 1: Find the amaunt at age 65; u5e the FV functian&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp723,796
Step 2: Find the PMT far a 25-year ardinary annuty using the FV you just found an the $P V$. &nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp&nbsp64.932

Question 19

You are considering investing in a bank account that pays a nominal annual rate of 7%,compounded monthly.If you invest $3,000 at the end of each month,how many months will it take for your account to grow to $150,000?
A) 39.60
B) 44.00
C) 48.40
D) 53.24
E) 58.57

Accepted Answer

$\begin{array}{lr}
\text { I/YR } & 7.0 \% \
\text { I/MO } & 0.583333 \%
\end{array} \text { Monthly annuity, so interest must be calculated on monthly basi }$
$\begin{array}{lr}
\mathrm{PV} & \$ 0 \
\mathrm{PMT} & \$ 3,000 \
\mathrm{FV} & \$ 150,000 \
\mathrm{N} & 44.0021
\end{array}$

Question 20

You agree to make 24 deposits of $500 at the beginning of each month into a bank account.At the end of the 24^th month,you will have $13,000 in your account.If the bank compounds interest monthly,what nominal annual interest rate will you be earning? A) 7.62% B) 8.00% C) 8.40% D) 8.82% E) 9.26%

Accepted Answer

BEGIN Mode
 $$\begin{array} { l r } 
\mathbf { N } & 24 \
\text { PV } & \mathbf { \$ 0 } \
\text { PMT } & \$500 \
\text { FV } & \$13,000 \
\text { I/MO } & 0.638 \%\
\text { I/YR } & 7.62\%
\end{array}$$

Quiz 4: Time Value of Money

Suppose you borrowed $15,000 at a rate of 8.5% and must repay it in 5 equal installments at the end of each of the next 5 years.By how much would you reduce the amount you owe in the first year?

Billy Thornton borrowed $20,000 at a rate of 7.25%,simple interest,with interest paid at the end of each month.The bank uses a 360-day year.How much interest would Billy have to pay in a 30-day month?

Suppose you deposited $5,000 in a bank account that pays 5.25% with daily compounding based on a 360-day year.How much would be in the account after 8 months,assuming each month has 30 days?

Suppose you borrowed $14,000 at a rate of 10.0% and must repay it in 5 equal installments at the end of each of the next 5 years.How much interest would you have to pay in the first year?

Suppose you borrowed $15,000 at a rate of 8.5% and must repay it in 5 equal installments at the end of each of the next 5 years.How much would you still owe at the end of the first year,after you have made the first payment?

You are considering investing in a European bank account that pays a nominal annual rate of 18%,compounded monthly.If you invest $5,000 at the beginning of each month,how many months would it take for your account to grow to $250,000? Round fractional months up.

Your bank offers to lend you $100,000 at an 8.5% annual interest rate to start your new business.The terms require you to amortize the loan with 10 equal end-of-year payments.How much interest would you be paying in Year 2?

Suppose you are buying your first home for $145,000,and you have $15,000 for your down payment.You have arranged to finance the remainder with a 30-year,monthly payment,amortized mortgage at a 6.5% nominal interest rate,with the first payment due in one month.What will your monthly payments be?

Suppose you borrowed $12,000 at a rate of 9.0% and must repay it in 4 equal installments at the end of each of the next 4 years.How large would your payments be?

Suppose your credit card issuer states that it charges a 15.00% nominal annual rate,but you must make monthly payments,which amounts to monthly compounding.What is the effective annual rate?

Pacific Bank pays a 4.50% nominal rate on deposits,with monthly compounding.What effective annual rate (EFF%) does the bank pay?

You plan to borrow $35,000 at a 7.5% annual interest rate.The terms require you to amortize the loan with 7 equal end-of-year payments.How much interest would you be paying in Year 2?

You are considering investing in a bank account that pays a nominal annual rate of 7%,compounded monthly.If you invest $3,000 at the end of each month,how many months will it take for your account to grow to $150,000?

You agree to make 24 deposits of $500 at the beginning of each month into a bank account.At the end of the 24^th month,you will have $13,000 in your account.If the bank compounds interest monthly,what nominal annual interest rate will you be earning?