Question

1. Seven years ago, you put $500 in a bank account earning 6%/year. What is the bank account balance today?

2. You want to double your money in 5 years. What rate of return do your need to earn?

3. At 4% per year, how long does it take for $500 to grow to $750?

4. What is the present value of an annuity due that pays $1000 per month for two years if the interest rate is 6%/year compounded monthly?

5. Suppose you want to borrow $30,000 for a new car. You can borrow at 12%/year, compounded monthly. If you take a 5 year loan, what is your monthly payment?

6. You agree to pay $150 per month for 48 months for a $5,700. What is the monthly interest rate? What is the effective annual rate (EAR)?

7. You expect a firm to pay growing dividends (g = 0.02 = 2%). You require a 12% rate of return. If the next dividend will be $2.50, what is the stock price today?

8. You receive a mortgage quote in Canada with a rate of 4%. What is the effective annual rate (EAR)? What is the implied monthly rate?

9. Classify the following as a transaction reported in a sub-component of the current account, or the capital and financial accounts of the two countries involved:

A debit to the goods part of the U.S. current account; a credit to the goods part of the Thai current account.

Answer 1

Compute the balance of the bank using the equation as shown below:

Balance = Deposit amount * ( 1 + Interest rate ) ^Period

             = $500 * ( 1 + 6% ) ⁷

            = $751.8151295

Hence, the bank account balance as of today is $751.8151295.