Question
1) Suppose you invest $ 1000in an account paying 6 %interest per year. a. What is the balance in the account after 2 years? How
1) Suppose you invest $ 1000in an account paying 6 %interest per year.
a. What is the balance in the account after 2 years? How much of this balance corresponds to "interest on interest"?
b. What is the balance in the account after 34 years? How much of this balance corresponds to "interest on interest"?
- What is the balance in the account after 2 years? The balance in the account (with compounded interest) after 2 years is $___ (Round to the nearest cent.)
2) You have a loan outstanding. It requires making 6 annual payments at the end of the next 6 years of $6,000 each. Your bank has offered to allow you to skip making the next 5 payments in lieu of making one large payment at the end of the loan's term in 6 years. If the interest rate on the loan is 8.16%, what final payment will the bank require you to make so that it is indifferent between the two forms of payment?
3) Your friend in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes one year to manufacture $500 . However, once built, the machine will last forever and will require no maintenance. The machine can be built immediately, but it will cost $5,000 to build. Your friend wants to know if he should invest the money to construct it. If the interest rate is 14.5% per year, what should your friend do?
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