Question

# Answer all of these questions with the right question number next to the correct choice. ANSWER...

Answer all of these questions with the right question number next to the correct choice. ANSWER ALL OR NONE

8-If your invest \$4,050 today, what interest rate would you need to earn in order to have \$5,500 at the end of 5 years?

A)5.79%

B)6.31%

C)0.06%

D)1.36%

9-When is the EAR equal to the APR?

A)When interest is compounded quarterly

B)When interest is compounded annually

C)When interest is compounded monthly

D)When interest is compounded semi-annually

10-The owner plans to invest the profits from his dealership in an attempt to raise capital to open a brand new used car lot somewhere down the line. If he invests \$200,000 today at 6% compounded monthly, how much will the owner have in 6 years?

A)\$285,152.18

B)\$286,408.86

C)\$285,900.56

D)\$283,703.82

11-What if the new cars that the owner/salesman plans to buy are delayed by 3 months? Assuming that he deposits \$280,000 today at 7% compounded quarterly, how much money will he have when the cars ship in 1 year and 3 months?

A)\$300,120.53

B)\$304,710.73

C)\$305,372.64

D)\$294,958.75

1)

Interest rate = (Future value / initial value)^1/n - 1

Interest rate = (5500 / 4050)^1/5 - 1

Interest rate = (1.35802)^1/5 - 1

Interest rate = 1.0631 - 1

Interest rate = 0.0631 or 6.31%

2)

B)When interest is compounded annually

When interest is compounded annually, effective annual rate(EAR) will always be equal to annual effective rate.

3)

Number of periods = 6 * 12 = 72

Monthly rate = 6% / 12 = 0.5%

Future value = Present value (1 + rate)^time

Future value = 200,000 (1 + 0.005)^72

Future value = 200,000 * 1.43204

Future value = \$286,408.86

4)

There are 5 quarters

Quarterly rate = 7% / 4 = 1.75%

Future value = Present value (1 + rate)^time

Future value = 280,000 (1 + 0.0175)^5

Future value = 280,000 * 1.09062

Future value = \$305,372.64

Future value =