QUESTION TWO

(a) Explain the term annuity (2 Marks)

(b) Distinguish between ordinary annuity and annuity due(2 Marks)

(c) Franklin Roosevelt borrowed GH 25,000 from Persus Bank at an interest rate of 16% and agreed to pay equal installments over five years.

You are required to

i) Determine the size of the payments

(3 Marks)

ii) Set up an amortization schedule for the loan (5 Marks)

iii) What is the total interest to be paid after five years (2 Marks)

d) Bill deposited $ 4,000 at a bank, which gives interest rate of 9%. How much will he have in three years if interest rate is paid ?

i) Semi- annually (2 Marks)

ii) Quarterly ( 2 Marks)

iii) James Benson borrowed GH15,000 from a bank for four years. If interest rate charged by the bank is 20%, how much will be paid by James at the end of the period? (2 Marks)

Vi) What is the effective interest rate if you deposit $100 at a bank today and earn interest at the rate of 10% compounded semi-annually?(4 marks)

[ 24 Marks]