Question

HW#3 EE401 Calculate the interest and total amount due at the end of the loan for both simple and compound interest. Loan (a) $ 1000 (6) $ 1500 (c) $10,000 (d) $25,000 (e) $47,750 Years Rate 2 5% 5 6% 10 10% 15 15% 20 20% The following cash flows are equivalent in value if the interest rate is i. Which one is more valuable if the interest rate is 2i? (1) 0— 1— 2 (i) 0— 1— 273 3. A bank is offering to sell 6-month certificates of deposit for $9800. At the end of 6 months, the bank will pay $10,000 to the certificate owner. Compute the nominal annual interest rate and the effective annual interest rate.

Answer 1

a ) Simple Interest :

If a present sum of money P is borrowed

at a simple annual interest rate i (stated as a decimal)

for a period of n years,

At the end of n years the amount of money due to lender ,F, would be

F=P+ Pin(3-2)

(or)

F= P (1+in)

Single Payment compound amount formula

Future Sum = present sum (1+i )n

Loans ( p)	Years (n)	Rate ( i )	simple Interest	Compound Interest
1000	2	0.05	1100	1102.5
1500	5	0.06	1950	2007.34
10000	10	0.10	20000	25937.42
25000	15	0.15	81250	203426.54
47750	20	0.20	238750	1830620.4