Question

4) interest questions: (10 pts total) How much will be in your bank account at the end of five years if you invest $5,000 now at 12% per annum, compounded annually? (1 pts) And what if the interest rate is 12% per annum, but compounded monthly? (1 pts) If you invest your $5,000 and want to have $10,000 in five years' time, what is the minimum yearly interest rate that will ensure that you have at least this much when the time comes? (2 pts) In the poor areas of many cities around the world, we find people offering pay-day' loans. One loan agency in Dacca offers to loan Gita $20 till her pay cheque arrives in two weeks time. When it arrives, she must pay back the $20 plus a $3 service charge. What is the effective annual interest rate she is paying on the loan? (3 pts) You can make monthly deposits into a savings account that pays interest at a nominal rate of 18% per year, compounded monthly. five years time? (3 pts) a. b. c. d. e. How much should you deposit each month if you want to have $7,000 in

Answer 1

Interest rate compound annually F = 5000(1 + 0.12)^5 = 5000(1.12)^5 F = $ 8,811.708 at the end of five year. If Interest rate compounded monthly, I = 0.12/12 = 0.01 F = 5000(1.01)^5 F = $ 5255.05 10000 = 5000(1 + r)^5 2 = (1 + r)^5 (1 + r) = 1.14869835 r = 0.14869835 r tildeequal 15% per year.