M203J Practice Quiz 4 Covering Chapter 10
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] Which is the best deal over a 3-year period and which is the worst: investing at 7.2% compounded annually, investing at 7% compounded monthly or investing at 6.8% compounded daily? Show how you determine the answer.
[2] 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.
[3] Use the appropriate formula to determine the monthly payment for a 60-month amortized loan of $25,495 at 4.5% interest, compounded monthly.
[4] How much money should you put in the bank today, at an APR of 3% compounded monthly, if you wish to withdraw 60 payments of $100 each, at monthly intervals with the first withdrawal one month from today, the second withdrawal two months from today, etc.? (I.e., what is the present value of 60 monthly payments of $100 each?)
[5] How much money will you have in the bank in 5 years if starting today you make 60 monthly payments of $100 each, assuming the account has an APR of 3% compounded monthly? (I.e., what is the future value of 60 monthly payments of $100 each?) Note that the last payment will be in the account for one month, while the first payment is in the account for 60 months.
[6] Problem 84 on p. 397.