Instructions: Answer each question, and when required explain your answer. Your explanation must be clear and complete. You may refer to your book, your notes and your homework papers.

• [1] (6 points) Problem 20 on p. 813: Which is the best deal over a 5-year period: investing at 8% compounded annually, investing at 7% compounded monthly or investing at 6.8% compounded continuously?
• [2] (6 points) Problem 21 on p. 814: How much money would have to be invested in an account at 4.25% annual interest to achieve a balance of $50,000 in 20 years in each of the following cases?
  • (a) The account pays simple interest?
  • (b) The account compounds interest semi-annually?
  • (c) The account compounds continuously?
• Here is an alternative possibility for [2]: (6 points) Problem 22 on p. 814: How much money would have to be invested in an account at 3.98% annual interest to achieve a balance of $25,000 in 17 years in each of the following cases?
  • (a) The account pays simple interest?
  • (b) The account compounds interest quarterly?
  • (c) The account compounds continuously?
• [3] (4 points) Problem 48cd on p. 817.
  • (c) Use the rule of 72 to find the approximate doubling time if an investment earns 4.5% compounded daily. Check your result by using the compound interest formula.
  • (d) Use the rule of 72 to find the approximate annual interest rate, compounded monthly, required for an investment to double in 1.5 years. Check your result by using the compound interest formula.
• [4] (8 points) Problem 24 p. 831.
  • (a) Use the monthly payment formula to determine the monthly payment for a 60-month amortized loan of $25,495 at 4.5% interest.
  • (b) Use an amortization table to find the monthly payment for the loan from part (a), and compare the result with the monthly payment found in part (a).

• [5] (6 points) Problem 36 p. 831: Tim needs to buy a car. After reviewing his budget, he decides he can afford $250 a month for a car payment. If he pays no money down and gets financing for 5 years at 7.25% interest, how much can he afford to pay for a car? Round to the nearest dollar.