1.Which of the following is TRUE about simple interest?

Select one:

A.We never use simple interest rates in financial calculations.

B.If we have an effective annual rate (EAR) of return for 3 years, we can just divide the EAR by 3 to get the equivalent annual simple rate of return.

C.Simple interest does not allow for any interest-on-interest.

D.Both B and C are correct.

2.You inherit $512,000. You can receive the $512,000 in one lump sum payment today or, alternatively, receive two amounts: $312,000 in 11 months and $220,000 in 21 months from today. If you can earn 5.4% per annum compounding monthly on your monies, what is the value of the option to receive two payments (in present day value)?

(to nearest whole dollar,; don't use $ sign or commas)

3.A sinking fund is set up so that level annual payments will accumulate, ati%p.a compounding annually, to $50,000 in 10 years. Assuming the payments made are at each year-end, after exactly 5 years the sinking fund will be:

[Note: a sinking fund allows for money to be set aside by periodical deposits in order to accumalte an amout to e.g replace equipment or repay debt due at a future date]

4.If money is invested for 4 years, the per annum simple interest rate equivalent to a nominal rate of 14.5%p.a compounding monthly is (as a percentage roundedto three decimalplaces; don't use % sign):