Question

$900 14.38. A foreign bank account pays 100% interest compounded monthly. (a) If a company deposits $50,000 each month, what will be in its bank account at the end of three years? (b) What is the effective annual interest, in percent? 14.39.* An elderly lady owns a home for which she has completely paid. She arranges a reverse mortgage for $100,000, whereby she will receive monthly payments for the home from a bank. She will be allowed to live in the house until her death, whereupon her estate will receive the equivalent of the remaining payments in a lump sum. The bank then owns the home. One month after she turns 70, she begins receiving monthly payments on a 30-year reverse mortgage at 7% interest compounded monthly. (a) What monthly payment does she receive? (b) At the time of her death at age 80, what lump sum payment is made to her estate? 14.40. For the diagram, assuming equivalence, determine the interest rate. Use interpolation of the tables in the Appendix. 500

Answer 1

14. 38) (a) Formula for compound interest is A- P(1 + 1 st A final amound P = Initial capital principal capital r = percentage of interest n = Times of claim ta period in years. Here we have A = ? P $50,000 ve 1001. - 100 = 1 n = 12 months - 1 year

A - 50,000 (1+ 000) 90.000 ( + )"? - 50,000 (13) = 50,000 (2.613) = 130,650 The Bark Balance at the end of the year would be $1,30,650 (6) Effective annual interest can be found ERR = (i+ nominal rate/n)(n-1) perto Here, nominal rate = looY:=100 n = 12 EIR = (1+1/2)2 = (13)" = 2.41 = 241 % .: The Effective interest rate per 1 year in 241% 100
a) The final account balance after a year is found to be approximately $130650.

b) The Effective interest rate annually is approximately 241%