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.