Question

16) The rate of interest agreed upon contractually charged by a lender or promised by a borrower is the ________ interest rate.

A) effective

B) nominal

C) discounted

D) continuous

17) Calculate the future value of $6,490 received today and deposited for five years in an account which pays interest of 14 percent compounded semiannually.

18) Calculate the future value of $10,000 received today and deposited for six years in an account which pays interest of 12 percent compounded quarterly.

Answer 1

16)Nominal

The nominal interest rate is taken before inflation is considered.

it is the interest rate of the contract paid by the lender or promised by the lender.

17)

Compound Interest

A=P*(1+rn)n*t

A=future value include interest

P= principle

r=rate

n=number of times interest applied in a period

t= periods

P= $6,490

r=14%=0.14

n=2

t=5 years

A=6490*(1+0.14 /2)^(2*5)

   =6490*1.967

=$12766.8

Future value of the investment is $ 12766.8

18)

P= $10,000

r=12%=0.12

n=4

t=6 years

A=10000*(1+0.12 /4)^(5*6)

   =10000*2.42726

=$24272.6

Future value of the investment is $ 24,272.6