Week 3 Practice

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QUESTION 3 Suppose you deposit $2.500 in a CD paying 8% interest, compounded every other month. How much will you have in the account after 15 years? Round your answer to the nearest cent. below is an example how to do problem mple 4 A certificate of deposit (CD) is a savings instrument that many banks offer. It usually gives a higher interest rate, but you cannot access your investment for a specified length of ime. Suppose you deposit $3000 in a CD paying 6% interest, compounded monthly. How much will you have in the accbunt after 20 years? In this example, Pa-$3000 1=0.06 -12 the initial deposit 6% annual rate 12 months in 1 year since we're looking for how much well have after 20 N=20 years 0.06 So P 3000 1+ 12 3D%2993061(round your answer to the nearest penny) %3D Let us compare the amount of money earned from compounding against the amount you would carn from simple interest Yars Simple Interest 6% compounded (S15 per month)monthly 0.5% each month 33900 $4800 $5700 $4046 55…

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Find r: You have $2,000 in a money market account. If you make no deposits to or withdrawals from this account, in 10 years you will have:     $10,000 in this account if the account’s interest rate is   $20,000 in this account if the account’s interest rate is

Paragraph UNDE bility: Good to go 2.. W 3.- VOR DUS IL MO13- earn her 12% compounded annually instead of 8%. How many years will it take her to rea her investment goals? d 5. Payday loans are very short-term loans that charge very high interest rates. You can borrow $500 today and repay $535 in two weeks. What is the compound annual rate implied by this percent rate charged for only two weeks? www. www www www 200 --- www Styles S u aut VE HAY 6. Given the same information in #5, what is the compound annual interest rate implied if the loan fee (interest) is $50? What is the compound annual interest rate implied. 6

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uestion 5 When you start your career, you decide to set aside $600 every month to deposit into an investment account. The investment firm daims that historically their accounts have earned an annual interest rate of 11.0% compounded monthly. Assuming this to be true, how much money will your account be worth after 25 years of depositing and investing? Round your answer to the nearest cent. Do not include labels or units. Just eriter the numerical value

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How much more will account X be worth than account Y after 25 years? Account X • $9000 initial deposit • 1.6% annual simple interest Account X will be worth $ 2606 Blank 1 Account Y $10,000 initial deposit . 0.3% annual simple interest more than account Y after 25 years.

Financila Management 1. PV of an ordinary annuity    Suppose you have an opportunity to buy an annuity that pays $1,000 at the end of each year for 5 years, at a          6% interest rate. What is the most you should pay for the annuity?  2. FV of an ordinary annuity   Suppose Sandra opens a bank account with 20 000 at the beginning of the year at an interest rate of 8%. If the       first deposit is made today and then 3 additional payments, how much would be accumulated after 5 years?  3. FV of an ordinary annuity due    An annuity makes 20 annual payments of $3,000 with the first payment coming today. What is the future value       of this as of 20 years from now if the interest rate is 8%?  4. PV of a perpetuity    What’s the present value of a perpetuity that pays $1500 per year if the appropriate interest rate is 15%? 5. PV of an uneven cash flow stream    At a rate of 5%, what is the present value of the following cash flow stream? $0 at Time 0; $250 at the end of           Year…

Imagine that two friends, Yan and Caden, each buy an iPod touch for $240, and pay with a credit card. When this happens, the credit card company pays Apple, and the friends become indebted to the credit card company. For every year they don't pay back the debt, the company charges them interest: a percentage of what they owe. The interest rate is called an annual percentage rate (APR), while the amount owed is called a balance. Calculate how much each person would owe over time if neither made any payments to the credit card company, assuming interest is calculated once per year. Balance after... Person APR 0 years Yan 18% 240 Caden 36% 1 years 283.2 2 years 334.176 3 years Balance after... Person APR 0 years 1 years Yan 18% 394.327 6 years 465.30 In reality, credit card companies don't charge interest every year, they charge interest every month. To determine the monthly interest rate, divide the APR by 12. Yan has an annual rate of 18%. So Yan has a monthly rate of Caden has an…

Suppose I want to be able to withdraw $5,000 at the end of five years and withdraw $6,000 at the end of six years, leaving a zero balance in the account after the last withdrawal. If I can earn 5% on my balances, how much must I deposit today to satisfy my withdrawal needs? A. $8,394.92 B. $9,141.37 C. $8,402.55 D. $8,724.74 E. $7,568.94

REVIEW AND SELF-TEST PROBLEMS Calculating Future Values Assume you deposit $1,000 today in an account that pays 8 percent interest. How much will you have in four years? (See Problem 2.) 4.1 10+h hieth dou

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