Question

In your answers, you should properly show your work by writing down your entries into the calculator. For instance, if you use the TVM worksheet of your financial calculator to compute how long it takes to double your account balance given 5% annual interest rate, you should write down your entries as: I/Y=5, PV=-1, PMT=0, FV=2, CPT N=? --- the question mark here stands for your answer to the question.

Question 6 – PV, Ordinary Annuity, Compounding [2 points]: Find the present value of the following ordinary annuities:

a) PV of $300 each six months for five years at a simple rate of 12 percent, compounded semiannually

b) PV of $150 each three months for five years at a simple rate of 12 percent, compounded quarterly

Question 7 – TVM, Compounding, Finding PMT [2 points]: Sue wants to buy a car that costs $20,000. She has arranged to borrow the total purchase price of the car from her credit union at a simple interest rate equal to 12 percent. The loan requires quarterly payments for a period of five years. If the first payment is due in three months (one quarter) after purchasing the car, what will be the amount of Sue’s quarterly payments on the loan?

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Question 8 – TVM, Finding N [2 points]: While Steve Bouchard was a student at the University of Florida, he borrowed $20,000 in student loans at an annual interest rate of 6.4 percent. If Steve repays $1,800 per year, how long, to the nearest year, will it take him to repay the loan?

Question 9 – rEAR versus rSIMPLE [2 points]: The First City Bank pays 6.6 percent interest, compounded annually, on time deposits. The Second City Bank pays 6.5 percent interest, compounded monthly. Based on effective interest rates, in which bank would you prefer to deposit your money?

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Question 10 – rEAR versus rSIMPLE [2 points]: Krystal Magee invested $150,000 18 months ago. Currently, the investment is worth $179,422. Krystal knows the investment has paid interest every month, but she doesn’t know what the yield on her investment is. Help Krystal. Compute both the annual percentage rate (APR), rSIMPLE, and the effective annual rate (EAR), rEAR.

Answer 1

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