Ch 5 example #52629

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question
Amanda only has \$600 today but needs \$1,300 to buy a new laptop. How long will Amanda have to wait to buy the laptop if she earns 8 percent compounded annually on her money?
10.05 years =NPER(.08,0,-600,1300,0)
question
By definition, a bank that pays simple interest on a savings account will pay interest:
only on the initial investment.
question
Compound interest is defined as the interest earned:
on both the initial principal and all interest earned and reinvested in prior periods.
question
Donald Jones invested \$3,500 ten years ago with an insurance company that has paid him 2 percent simple interest on his funds. Darla Ward invested \$3,500 ten years ago in a fund that has paid her 2 percent interest, compounded annually. How much more interest has Darla earned than Donald over the 10 years?
\$66.48 FV(1)=3500*(1+10*0.2) FV(1)=4200 FV(2)=-FV(2%,10,0,3500,0) FV(2)=4266.48 4266.48-4200=66.48
question
Juanita invested \$1,000 today in an investment that pays 7.25 percent interest, compounded semi-annually. Which one of the following statements is correct concerning this investment?
Juanita will earn more interest in year 4 than she will in year 3.
question
Kate wants to invest \$1,000 for five years. Which one of the following will provide her with the largest future value?
7 percent interest, compounded monthly =-FV(.07/12,5*12,0,1000,0) fv=1417.63
question
Lisa deposits \$2,500 into an account paying 5 percent interest, compounded annually. At the same time, Jill deposits \$2,500 into an account paying 2.5 percent interest, compounded annually. At the end of five years:
Lisa will have earned more than twice the amount of interest that Jill earned.
question
The Corner Bank pays 4 percent interest, compounded monthly, on its savings accounts. The Uptown Bank pays 4 percent interest, compounded quarterly, on its savings accounts. You want to deposit sufficient funds today so that you will have \$2,400 in your account 3 years from today. The amount you must deposit today:
will be greater if you invest with The Uptown Bank.
question
The Mailbox Co. invested \$50,000 at 7.5 percent compounded annually for 2 years. How much interest on interest did the company earn over this period of time?
\$281.25 FV(1)=50000*(1+0.075) FV(1)=53750 interet gained=50000*0.075=3750 interest on interest=3750*0.075=281.25
question
Today, you deposit \$10,750 in a bank account that pays 3 percent simple interest. How much interest will you earn over the next 7 years?
\$2,257.50 10750*0.03*7=2257.5
question
What is the future value of \$4,900 invested for 8 years at 7 percent compounded annually?
\$8,419.11 =-FV(0.07,8,0,4900,0)
question
Which of the following will increase the total amount of interest earned on an investment? Assume all interest is reinvested. I. increasing the frequency of the interest payments; II. decreasing the frequency of the interest payments; III. increasing the interest rate; IV. decreasing the interest rate;
I and III only
question
Thirteen years from now, you will be inheriting \$30,000. What is this inheritance worth to you today if you can earn 4 percent interest compounded annually?
\$18,017.22
question
Tim needs to borrow \$5,000 for two years. The loan will be repaid in one lump sum at the end of the loan term. Which one of the following interest rates is best for Tim?
7.5 percent simple interest
question
Which one of the following is a correct statement, all else held constant?
The present value is inversely related to the interest rate.
question
Which one of the following will increase the future value of a lump sum invested today?