Question 1

Complete the following table:

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Question 2

Complete the following table:

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Question 3

Complete the following table:

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Question 4

Complete the following table:

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The answer of Complete the following table:
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Question 5

What is the effective annual rate of interest for a nominal rate of 4%, compounded quarterly?

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Question 6

What is the effective annual rate of interest for a nominal rate of 10%, compounded semi-annually?

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Question 7

A furniture company charges 18% on outstanding balances. If interest is compounded monthly, what is the effective interest rate that the furniture company charges?

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Question 8

A furniture company charges 16% on outstanding balances. If interest is compounded continuously, what is the effective interest rate that the furniture company charges?

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Question 9

A national cellular company discourages carrying a balance by charging 20% interest compounded daily on unpaid balances. What is the effective interest rate that the cellular phone company charges?

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Question 10

The Big Bank would like to charge, effectively, 20% on the credit card debt of its customers. If the bank uses continuous compounding in calculating the interest charges on its cards, what nominal rate should the Big Bank be advertising?

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The answer of The Big Bank would like to charge,...

Question 11

How much is the monthly mortgage payment on a 30-year loan of $400,000 at a stated rate of 5%?

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Question 12

How much is the quarterly payment on a 15-year loan of $500,000 at a stated rate of 8%?

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Question 13

How much is the monthly mortgage payment on a 30-year loan of $400,000 at a stated rate of 6% and a balloon payment of $50,000?

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Question 14

A homeowner is anxious to pay off their mortgage. After sending in their payment this month they are curious what the remaining principal balance will be. The bank's system is down so they ask you to calculate it for them. If the beginning mortgage balance was $3,000 and they made a $750 payment, with an annual interest rate of 6%. What is the remaining principal balance after the payment? What will the remaining principal balance be after two payments? Show your work.

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Question 15

A college graduate looks forward to paying off her student loan. Her balance is $1,500 and she makes a $350 loan payment with an annual interest rate of 3.5%. What is the remaining principal balance after the payment? What will the remaining principal balance be after three payments? Show your work.

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The answer of A college graduate looks forward to paying...

Question 16

Your grandmother hears you are a finance major and asks for your help in planning for her retirement. She wants to begin saving an amount each year, starting two years from now, to provide for her retirement in five years. Her goal is to save $75,000 five years from today and then live off of her savings for the eight years after her retirement. You feel she will be able to earn 5% on her money.
A. How would you determine how much she needs to save each year to meet her goal?
B. How would you determine how much she would have to spend each year in retirement?

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Question 17

Bank A would like to set its interest rate on its CDs to be competitive with Bank B's CD. Bank B's CD earns 4% interest per year, compounded quarterly. What rate would Bank A have to advertise to be equivalent to Bank B's, if Bank A's CDs have interest compounded continuously?

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Question 18

Compound interest results in a higher future value than simple interest because of:

Accepted Answer

Compound interest results in a higher future value than simple interest primarily because it allows for interest to be earned on previously accumulated interest, effectively causing the investment to grow at an accelerating rate over time.

Question 19

If you invest $1 million today, and the value of investment grow 5 percent next year and 4 percent the following year, the value of you investment in two years is closest to:

Accepted Answer

The value of the investment after two years can be calculated by applying the growth rates successively. After the first year, the investment grows by 5%, making it $1 million * 1.05 = $1.05 million. In the second year, it grows by 4%, making it $1.05 million * 1.04 = $1.092 million.

Question 20

A company that borrows $50 million and repays this loan in a lump-sum of $55 million in two years is paying, effectively, annual interest at the rate closest to:

Accepted Answer

The effective annual interest rate can be calculated using the formula for the compound annual growth rate (CAGR), which is [(Ending Value/Beginning Value)^(1/Number of Years)] - 1. Here, the ending value is $55 million, the beginning value is $50 million, and the number of years is 2. Plugging these values into the formula gives us [(55/50)^(1/2)] - 1 = 0.0488 or 4.88%.

Quiz 5: Time Value of Money

Complete the following table:

Complete the following table:

Complete the following table:

Complete the following table:

What is the effective annual rate of interest for a nominal rate of 4%, compounded quarterly?

What is the effective annual rate of interest for a nominal rate of 10%, compounded semi-annually?

A furniture company charges 18% on outstanding balances. If interest is compounded monthly, what is the effective interest rate that the furniture company charges?

A furniture company charges 16% on outstanding balances. If interest is compounded continuously, what is the effective interest rate that the furniture company charges?

A national cellular company discourages carrying a balance by charging 20% interest compounded daily on unpaid balances. What is the effective interest rate that the cellular phone company charges?

The Big Bank would like to charge, effectively, 20% on the credit card debt of its customers. If the bank uses continuous compounding in calculating the interest charges on its cards, what nominal rate should the Big Bank be advertising?

How much is the monthly mortgage payment on a 30-year loan of $400,000 at a stated rate of 5%?

How much is the quarterly payment on a 15-year loan of $500,000 at a stated rate of 8%?

How much is the monthly mortgage payment on a 30-year loan of $400,000 at a stated rate of 6% and a balloon payment of $50,000?

Bank A would like to set its interest rate on its CDs to be competitive with Bank B's CD. Bank B's CD earns 4% interest per year, compounded quarterly. What rate would Bank A have to advertise to be equivalent to Bank B's, if Bank A's CDs have interest compounded continuously?

Compound interest results in a higher future value than simple interest because of:

If you invest $1 million today, and the value of investment grow 5 percent next year and 4 percent the following year, the value of you investment in two years is closest to:

A company that borrows $50 million and repays this loan in a lump-sum of $55 million in two years is paying, effectively, annual interest at the rate closest to: