Compounding Period Problems 4. Your bank offers a 4-year certificate of deposit at a 12% interest rate compounded quarterly. Determine how much additional interest you will earn over 4 years on a $10,000 CD that is compounded quarterly compared with one that compounded annually. 5. Your bank offers a 2-year certificate of deposit at a 10% interest rate compounded continuously. Determine how much additional interest you will earn over 2 years on a $10,000 CD that is compounded continuously compared with ones that are compounded annually or semiannually. Solving for i and n 6. As one of two heirs to an estate, you will collect $20,000 in 5 years. The other heir, Gertrude, offers you $15,000 for your share. If you accept Gertrude's offer, what effective rate of return would you earn? If you can earn 8% on your investments, should you accept Gertrude's offer? 7. You bought a piece of land three years ago for $5,000. If you can sell it now for $7,407 50, what is you annual rate of return? If you can normally earn a return of 20% on this type of investment, did you do well with this one? Present Value Problems 8. BLT stock is yielding a 20% return. It is expected to give a dividend of $1 and to sell for $23 at the end of the year. How much should you pay for the stock? 9. You have won the grand prize in a contest. You have the choice of receiving $10,000 one year from now or $15,000 three years from now. If you can earn 8% interest compounded quarterly on your money, which should you choose? 10. Your bank is offering you two sets of terms on a loan. You may borrow $10,000 today repayable in 3 years in a lump sum of $20,000. Or you may borrow $10,000 today repayable in 1 year in a lump sum of $14,257 Interest is compounded monthly. Which loan term provides the lower interest cost