Finance

1. You have been saving for a car over the last seven years and you plan to

purchase the car at the end of the next three years. Given the following:

a) You have been saving for the last seven years by depositing $500 at the

end of each year into Bank A. You earned 4% annual compounding

during the last seven years at Bank A. How much do you have at the

end of the seventh year?________________

b) At the end of the seventh year, you withdraw your money from Bank A

and deposit it into Bank B where you will earn 5% interest compounded

semiannually for the next three years. How much money will you have

at the end of three years when you withdraw your money from Bank B

to purchase the car?_____________________________

3.

You plan to deposit the following amounts in your savings account at the end of

each 6 month period (semiannually). Your deposit/per semiannual period

are presented in the table below:

6

month

6

month

6

month

6

month

6

month

6

month

6

month

6

month

$500

$750

$1200

$1300

$1250

$425

$675

$350

Assuming you earn 6% semiannual compounding, how much will you have at

the end of four years?_____________________

3.

You plan to deposit the following amounts in your savings account at the end of

each 6 month period (semiannually). Your deposit/per semiannual period

are presented in the table below:

6

month

6

month

6

month

6

month

6

month

6

month

6

month

6

month

$500

$750

$1200

$1300

$1250

$425

$675

$350

Assuming you earn 6% semiannual compounding, how much will you have at

the end of four years?_____________________

4. Assume a person retires today with $1,640,000 in his account. Assume the interest rate is

4.5% compounded monthly. The person plans to withdraw the same amount at the

beginning of each month for the next 20 years until all of the money is gone. How

much will the person withdraw each month? ________________

5. Assume a 6% interest rate compounded quarterly. What is the Present Value of

an investment that promises to pay the following: $1200 received at the

end of

each year

for 30 years?___________________

6. Answer the following:

a) Assume annual compounding. You deposit $18,000 in the bank today. What is

the interest rate that you would earn if you have $25,000 at the end of 10

years?__________________________

b) Assume at the end of year 10, you move this $25,000 to a new investment.

Assume the new investment earns 7% interest rate compounded quarterly. How

much would you have after the six years?__________________________

7.You deposit equal payments of $1000 in the bank for the next 12 years. Assume

the payments are made at the beginning of each year. Assume a 5% interest rate

with quarterly compounding.

a) What is the effective rate of this investment?_________

b) How much will you have at the end of 12 years? ________________

c) Is this an annuity?(yes/no)_______ and if so,

d) What type of annuity?(ordinary/due/not an annuity) ________

8. You deposit equal payments of $475 in the bank for the next eight years. Assume the

payments are made at the end of each year. Assume quarterly compounding. At the end of eight

years, you will have $6,500.

a) What is the effective rate of this investment?______________________

b) What is the nominal rate of this investment?______________________________

c) What is the periodic rate of this investment? __________________________________