1. What is the difference between nominal and effective interest rate?

2. If you invest $35,000 at 11% interest, how much will you have in 3 years?

3. How much must you invest at 11% interest in order to see your investment grow to $3,000 in 4 years?

4. If Sultan expects the investment to increase in value at a rate of 13% compounded annually for the next year. What is the effective interest rate?

(Please use four decimals)

5. What is the effective rate of return of a nominal interest rate of 13 % compounded semiannually?

(Please use four decimals)

6. What is the effective rate of return of a nominal interest rate of 13 % compounded quarterly?

(Please use four decimals)

7. What is the effective rate of return of a nominal interest rate of 13 % compounded daily?

(Please use four decimals)

(Questions 8-9). If Melody wants to purchase a house for $220,000 and finance $110,000 with either a 3.8%, 30-year mortgage or a 4.5%, 20-year mortgage.

8.What is the effective interest rate on each of the above alternatives?

Note: Only compare the interest rates for the above two options based on monthly compounding. Please use four decimals.

A.

B.

9.Which alternative would you recommend and why?

10. What would be the value of a savings account started with $76,000, earning 5.5 percent (compounded annually) after 8 years?

11. What would be the value of a savings account started with $4,300, earning 2.5 percent (compounded annually) after 10 years?

(For questions 13-16). How much would you have to invest today to receive

12. $25,000 in 8 years at 9 percent compounded semiannually

13. $35,000 in 12 years at 10 percent compounded quarterly

14. $45,000 in 13 years at 11 percent compounded monthly

15. $55,000 in 15 years at 12 percent compounded daily

(For questions 17-20). If you invest $37,000 today, how much will you have

16. In 3 years at 10%?

17. In 7 years at 11%?

18. In 20 years at 12%?

19. In 60 years 12%?

20. How long will it take to double your money at 12% interest compounded annually?

21. Jane desires to have $70,000. If she expects to earn 8.5 percent (compounded annually) on her money, how long will it take her to reach her goal?

22. Sylvia expects to receive $85,000 from a trust fund in 6 years. What is the current value of this fund if it is discounted at 9% compounded semiannually?

23. You were able to buy kosher salt for 0.45 cents ten years ago; if it currently costs $1.10 what is the average inflation (interest rate) rate for this item?