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Alice wishes to determine how long it will take an initial deposit of $10,000 to double. Required: (i) If Alice earns 10% annual interest on
Alice wishes to determine how long it will take an initial deposit of $10,000 to double. Required: (i) If Alice earns 10% annual interest on the deposit, how long will it take for her to double her money? (4 marks) (ii) Explain the general relationship exists between compounding intervals and present value. (3 mark) (b) You want to borrow $24,000 for a tax payment. Your friend offers you a loan, and he claims that he will only charge you 10% interest. He calculates that the total interest of the loan will be $24,000x10% = $2,400, so he deducts this amount from the loan, gives you $21,600, and tells you to repay $24,000 in one year. Has your friend charged you 10% interest? What is the real interest rate charged on the loan? (4 marks) (c) Mei borrows $10,500 from the bank at 11 percent annually compounded interest to be repaid in six equal annual installments. Required: (1) Determine the firm's annual loan payment. (ii) Prepare an amortization schedule for the loan. (2 marks) (12 marks) [Total: 25 Marks]
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