Question

1. Determine the discount rate assuming the present value of $940 at the end of 1-year is $865?

2. $9,800 is deposited for 12 years at 5% compounded annually, determine the FV?

3. If $2,800 is discounted back 4 years at an interest rate of 8% compounded semi-annually, what would be the present value?

4. Consider a newlywed who is planning a wedding anniversary gift of a trip to Canada for her husband at the end of 10 years. She will have enough to pay for the trip if she invests $4,000 per year until that anniversary and plans to make her first $4,000 investment on their first anniversary. Assume her investment earns a 7 percent interest rate, how much will she have saved for their trip if the interest is compounded in each of the following ways?

a. Annually

b. Quarterly

c. Monthly

5. If you applied for a loan of $10,000 from two different banks, and Bank Y makes an offer to charge interest of 5% compounded monthly and Bank Z offers you 6% semi-annual interest due at the end of the year. What will be the difference in the Effective Interest Rate charged by the two banks?

Answer 1

for formulas and calculations, refer to the image below -