1. $100,000 is invested for 20 years at 5%. What are the proceeds using: simple interest, annual compound interest, semi-annual compounding?

2. In the question above, what must the annual compounding rate be in order to produce the same proceeds as 5% semi-annual? What must the quarterly compounding rate be in order to produce the same proceeds as 5% semi-annual?

3. How much do you need to invest today at 4% in order to receive $100,000 in proceeds at the end of two and a half years with a) annual and with b) semi-annual compounding?

4. You invest $100,000 for one full year at 3.5%. What are your proceeds assuming:

annual compounding

monthly compounding, where each months rate is assumed to be compounded at the stated rate/12, regardless of the days in the month

daily compounding, where each days interest is the stated rate/365

extra credit) continuous compounding; i.e., use the formula: Proceeds = e^rn where n is the number of years (in this case, 1)

Notice the pattern of increases from a) to b) to c) to d). What can you conclude?

5. Recognizing the proper (U.S.) day-count conventions, what are your proceeds from investing $1MM at 3%, beginning September 4 for:

1 week

4 weeks

1 month

3 months

52 weeks

Ignore any week-end problems.

6. a) Compare the proceeds from a 2-year $100,000 investment at 5.5%, annual compounding, with that from investing for 1 year at 5.5% and rolling over at 5.5% for the second year.

b) Compare the proceeds from a 2-week (money market) $100,000 investment at 5.5%, with that from investing for 1 week at 5.5% and rolling over at 5.5% for the second week.