Question

4. It you invest $50,000 to earn 8 % interest , which of the following compounding approaches would return the highest amount after one year? a. Annually b. Quarterly c. Monthly d. Daily 5. Assume ABC Company deposits $20,000 with First National Bank in an account earning interest at 8% per annum, compounded quarterly. How much will ABC have in the account atter 3 years? (Use the factor tables provided at the end. Round answers to the nearest whole dollar.) a. $25,194 b. $25,306 c. $25,365 d. $26,898 6. Barkley Company will receive $16,000 in a future year. If the future receipt is discounted at an interest rate of 4 % annually , its present value is $10,000. In how many years will the $16,000 be received? (Use the factor tables provided at the end. Choose the closest answer.) a. 1 years b. 12 усars с. 13 уears d. 16 years 7. Lucy and Fred want to begin saving for their baby's college education. They estimate that they will need $200,000 in 6 years. If they are able to earn 10 % per year, how much must be deposited at the end of each 6 months to fund the education? (Use the factor tables provided at the end. Round answers to the nearest whole dollar.) a. $12,565 b. $11,367 c. $15,174 d. $28,674 3

Answer 1

Answer 4
Smaller period of the time for compounding approach provides more return in the same period. Daily compounding approaches would return the highest amount after one year.
Correct option is d.		Daily
Answer 5
Rate per quarter (8%/4)		2%
Number of period (3 years * 4 quarters in year)		12
Year	Period	Future value factor @2%
1	1	1.02000
1	2	1.04040
1	3	1.06121
1	4	1.08243
2	5	1.10408
2	6	1.12616
2	7	1.14869
2	8	1.17166
3	9	1.19509
3	10	1.21899
3	11	1.24337
3	12	1.26824
Amount deposited into bank account		$               20,000
Multiply: Future value factor (for n = 12, r = 2%)		1.26824
Value after 3 years		$               25,365
Correct option is c.		$               25,365
Answer 6
Year	Present value factor @4%
1	0.962
2	0.925
3	0.889
4	0.855
5	0.822
6	0.790
7	0.760
8	0.731
9	0.703
10	0.676
11	0.650
12	0.625
13	0.601
14	0.577
15	0.555
16	0.534
Present value	$              10,000
Divided by: Future value	$              16,000
Present value factor @ 4%	0.625
From above table Present value factor @ 4% = 0.625 where year = 12 years		12 years
Correct option is b.		12 years
Answer 7
Rate per semiannual (10%/2)		5%
Number of period (6 years * 2 semiannual period in year)		12
Year	Period	Future value factor @5%
1	1	1.00000
1	2	1.05000
2	3	1.10250
2	4	1.15763
3	5	1.21551
3	6	1.27628
4	7	1.34010
4	8	1.40710
5	9	1.47746
5	10	1.55133
6	11	1.62889
6	12	1.71034
	Total	15.91713
Estimated education fund needed		$            200,000
Divided by: Annuity future value factor @5%, n = 12		15.91713
Amount must be deposited at the end of each six moths		$               12,565
Correct option is a.		$               12,565