Question

How will the compounding period (Monthly vs annually) change
the discounting formula?

Answer #1

The discount rate is used to determine cash flows. The cash flows occur at the end of each month then we can use the monthly discount formula — the annual discount rate calculated by using the annual percentage rate. The monthly rates can be obtained from dividing the annual rate by 12. But it is different in compounding formula. The conversion of annual rate into monthly rates by compounding we can use the following formula.

APR is the annual percentage rate

The conversion of monthly into annually by using the following formula,

Find the following values using the equations and then
a financial calculator. Compounding/discounting occurs annually. Do
not round intermediate calculations. Round your answers to the
nearest cent.
An initial $200 compounded for 1 year at 9%.
$
An initial $200 compounded for 2 years at 9%.
$
The present value of $200 due in 1 year at a discount rate of
9%.
$
The present value of $200 due in 2 years at a discount rate of
9%.
$

Find the following values using the equations and then
a financial calculator. Compounding/discounting occurs annually. Do
not round intermediate calculations. Round your answers to the
nearest cent.
An initial $600 compounded for 1 year at 3%.
$
An initial $600 compounded for 2 years at 3%.
$
The present value of $600 due in 1 year at a discount rate of
3%.
$
The present value of $600 due in 2 years at a discount rate of
3%.
$

Consider an account with an APR of 4.6%. Find the APY with
quarterly compounding, monthly compounding, and daily
compounding. Comment on how changing the compounding period affects
the annual yield

•You invest $25,000 into an account which will return 9%
annually (with monthly compounding). If you withdraw $200 at the
beginning of each month, how long will it take before your account
runs out of money?
How would I do this using a texas instruments BA II Plus
calculator?

Consider an account with an APR of 6.8%. Find the APY with
quarterly compounding, monthly compounding, and daily
compounding. Comment on how changing the compounding period affects
the annual yield. When the interest is compounded quarterly," What
is the APR"?

Use the compound interest formula for compounding more
than once a year to determine the accumulated balance after the
stated period.
49) $2500 deposit at an APR of7.5% with monthly
compounding for 7 years
A ) $4219.25 B) $2611.45 C) $3375.40 D)
$74,802.06

Direction: Compounding More than once a Year. Use the
appropriate compound interest formula to compute the balance in
each account after the stated period of time.
1.) $10,000 is invested for 5 years with an APR of
2.75% and monthly compounding.
Directions: Annual Percentage Yield (APV). Find the annual
percentage yield (to the nearest 0.01%) in each case.
1.) A bank offers an APR of 3.2% compounded
monthly.
Directions: Continuous Compounding. Use the formula for
continuous compounding to compute the...

Direction: Compounding More than once a Year. Use the
appropriate compound interest formula to compute the balance in
each account after the stated period of time.
1.) $10,000 is invested for 5 years with an APR of
2.75% and monthly compounding.
Directions: Annual Percentage Yield (APV). Find the annual
percentage yield (to the nearest 0.01%) in each case.
1.) A bank offers an APR of 3.2% compounded
monthly.
Directions: Continuous Compounding. Use the formula for
continuous compounding to compute the...

A certificate of deposit for $100 is worth $125 after two year
period with monthly compounding. What is the nominal
annual interest rate?
a.
9.1%
b.
11.2%
c.
12.5%
d.
12.11%
e.
3.02%

1) What is the meaning of the time value of money?
2) How are compounding and discounting related?
3) What happens to the future value of a lump sum invested the
longer the time period for which it will be invested?

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