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1. A bank account has an interest rate of 1.8%. What is the equivalent interest rate used when…

a) compounding monthly? b) compounding quarterly?

c) compounding weekly? d) compounding daily?

2. Mike invests \$10 000 at 6% per year compounded weekly. Determine the total interest Mike earned after 3 years.

3. Jeremy plans to go on a cruise 4 years from now. He will need \$7500 at that time. What principal should Jeremy invest now at 8.4% per year compounded monthly to obtain the required amount?

4. Adrian wants to have \$15000 in 3 years to start a mechanic shop. He plans to save the money by making regular deposits into an annuity that earns 4.8% compounded monthly. What monthly deposits does Adrian have to make?

Nov 1, 2017

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1) :

a - [1 + 0.018/12]^12=1.018149 - 1 x 100 =1.815% compounded monthly.

b - [1 + 0.018/4]^4   =1.018122 -1  x 100 =1.8122% componded quarterly.

c - [1 + 0.018/52]^52=1.018160 - 1 x 100=1.816% compounded weekly.

d -[1 + 0.018/365]^365=1.0181625 - 1 x 100=1.81625% componded daily.

2):

FV = PV[1 + R]^N

FV =10,000 [1 + 0.06/52]^(3*52)

FV =10,000 x      1.19709313870..........

FV =\$11,970.93 - The amount in Mike's account after 3 years.

\$11,970.93 - \$10,000 =\$1,970.93 Total interest earned.

3):

PV = 7,500 / [1 + 0.084/12]^(4*12)

PV = 7,500/ [1.007]^48

PV = 7,500/ 1.39770199988.......

PV =\$5,365.95 - This is what Jeremy must invest today.

4):

This is the formula you would use to calculate this one:

FV = PMT{[1 + 0.048/12]^(3*12) - 1 / (0.048/12)}

15,000 =PMT {[1.004]^36 -1 / (0.004)}

15,000 =PMT x      38.638108459.........

PMT = \$15,000 / 38.638108459...........

PMT=\$388.22 Monthly payment that Adrian must make every month for 3 years.

Nov 1, 2017