Question

1). How much should be invested at 7% to have $1300 at the end of 2.5 years? (Round your final answer to two decimal places.)

2).Find the annual nominal rate for the effective rate given below.

Effective rate = 4.902%. Annual rate is compounded quarterly. (Round your final answer to one decimal place.)

3). Consider the following.

$38,000 is invested at 5.5% compounded annually for 7 years. (Round your final answers to two decimal places.)

a. Find the final amount b. Find the total interest earned on the original investment.

Answer #1

1.We use the formula:

A=P(1+r/100)^n

where

A=future value

P=present value

r=rate of interest

n=time period.

1300=P(1.07)^2.5

P=$1300/1.07^2.5

=$1300*0.844385089

=**$1097.70(Approx).**

**2.**

EAR=(1+APR/m)^m-1

where m=compounding periods

0.04902=(1+APR/4)^4-1

(1+0.04902)^(1/4)=1+APR/4

Hence APR=[(1+0.04902)^(1/4)-1]*4

=**4.8%(Approx).**

**3.**

We use the formula:

A=P(1+r/100)^n

where

A=future value

P=present value

r=rate of interest

n=time period.

A=$38000*(1.055)^7

=$38000*1.454679161

**$55277.81(Approx)**

**Total interest earned on original
investment=**$38000*5.5%*7 year

=**$14630.**

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