Question

If you borrowed $1,350 to pay rent from a rapid cash advance company, and you have to pay $1,485 after ten months, what is the rate of simple interest charged?

a. 1%

b 11%

c 1.2%

d 12%

If you deposit $401.45 into continously compounded account at 6.25% how much will you withdraw in 10 year?

You are offered 5.5% compounded quarterly for the first 5 years of employment. What should you deposit to have $10,278.55 at the end of five year?

Answer 1

Answer 1)

Simple Interest = Interest / Loan Amount * 12 / 10

= (1485 - 1350) / 1350 *12 / 10

= 0.12 OR 12%

Answer 2)

Future Value = Deposited Amount * e^(r*t)

= 401.45 * e^(0.0625*10)

= 401.45 * 1.86824595743

= $ 750

Answer 3)

Future Value = Present Value * (1+r)^n

r is 5.5% / 4 = 1.375%

n is 5 years * 4 = 20

10,278.55 = Present Value * (1 + 0.01375)^20

10,278.55 = Present Value * 1.31406650166

Present Value =  10,278.55 / 1.31406650166

Present Value = $ 7,821.94