1. How much your money will grow if you deposit $100 which earned 6% simple interest for 4 years? How much if it is compound interest? How much interest was earned on interest?
2. The sale of Manhattan Island from the native American Tribe, the Algonquin, occurred in 1626. The price paid for Manhattan Island was $24. What it a good deal assuming an interest of 8%? What if the interest rate is 6%?
3. Suppose you borrow money at a monthly rate of 1%, what is the EAR and what is the APR?
4. Calculate the EAR for APR of 10% with monthly compounding, 8% with quarterly compounding and 10% with semiannual compounding.
5. How long does it take your money to grow to 5,000 if you deposit 1,000 today and bank pays 6% quarterly compound interest?
6. Rhule Auto is offering free credit on $10,000 car, pay $4000 down and balance in 2 years. Smart Auto gives $1000 off the list price. If the interest rate is 10% who is giving better deal?
7. You are offered an investment that will pay you $200 in one year, $400 the second year, $600 the third year, and $800 at the end of the last year. You can earn 12% on very similar investments. What is the most you should pay for this one?
8. Investment A pays $100 per year for three years. Investment B pays $80 per year for four years. Which investment would you choose if the discount rate is 10% and why?
9. You have joined a company. Theyve offered you two different salary arrangements. You can have $40,000 per year for the next two years or $20,000 per year for the next two years along with a $30,000 signing bonus today. If the interest is 16% compound annually, which do you prefer?
10. Suppose we were examining an investment that promised to pay $500 at the end of each year for the next three years. We want to earn 10 percent on our money, how much would we offer for this annuity? How much, if the payment is made at the beginning of each year?
11. After carefully going over your budget, you have determined you can afford to pay $632 per month towards a new sports car. You call up your local bank and find out that the going rate is 1 percent per month for 48 months. How much can you borrow?
12. Your landscaping company can lease a truck for $8000 a year (paid at the year-end) for 6 years. It can instead buy the truck for $40,000. The truck will be value less after 6 years. If the interest rate your company can earn on its funds is 7%, is it cheaper to buy or lease?
13. A local bank advertises the following deal Pay us $100 a year for 10 years and then we will pay you (or your beneficiaries) $100 a year forever. Is this a good deal if the interest rate available on other deposits is 6%?
14. You borrow $1000 and you repay the loan by making total payments of $1200: $100 a month for 12 months. The lender argues that since the loan is for 1 year and the total amount of interest paid is $200, the interest rate is 20 %. What is the APR and effective annual rate on this loan? Is the 20% rate quoted on this loan deceptive?
15. To retire with $1,000,000 in 40 years, how much would have to be deposited monthly to meet the goal assume an interest rate of 7.375%? How much principal is paid into the account? How much interest was earned?