Question

5. Suppose a CD (Certificate of Deposit) advertised an APR of 8%. Assuming the APR was the result of monthly compounding, find the effective annual yield to the nearest tenth of a percent.

Answer 1

Solution 5) Time (t) Rate 12 months 8% Effective Yield (1+r/t)^t - 1 (1 +0.08/12 ) 12 -1 (1.00667)^12 -1 1.0829991 8.30% $ Solution 8) Monthly Payment Rate of Interest (3.8% /12) Time ( 30 years x 12) 900 0.3167% 360 months PV of annuity factor (0.3167%, 360) 214.92077 Amt to be borrowed ($ 900 x 214.92077) $ 1,93,428.69 $ Solution 9) Amount Invested Rate ( 4% /4) Time ( 10 years x 4) 5,000 1% per qtr 40 quarters Future Value factor ( 1%, 40) 1.48886 Balance after 10 years ( $5000 x 1.48886) $ 7,444.30 Interest Earned ( $7,444.30 - $5,000) $ 2,444.30 Solution 10) Time ( 65 - 22 ) x 12 Rate ( 9%/12) Amount on Maturity 516 months 0.75% 10,00,000 $ FV of Annuity due (0.75%, 516) 6213.59588 Monthly Deposit ($1000000 / 6213.5958) $ 160.94 Amount on Maturity less: Total Deposits ( $160.94 x 516) Interest Earned $ 10,00,000.00 $ 83,043.70 $ 9,16,956.30

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