Multiple Choice

Identify the choice that best completes the statement or answers the question.

____ 8. Which of the following bank accounts has the highest effective annual return?

a. An account that pays 8% nominal interest with monthly compounding.

b. An account that pays 8% nominal interest with annual compounding.

c. An account that pays 7% nominal interest with daily (365-day) compounding.

d. An account that pays 7% nominal interest with monthly compounding.

e. An account that pays 8% nominal interest with daily (365-day) compounding.

____ 9. Your bank account pays a 6% nominal rate of interest. The interest is compounded quarterly. Which of the following statements is CORRECT?

a. The periodic rate of interest is 1.5% and the effective rate of interest is 3%.

b. The periodic rate of interest is 6% and the effective rate of interest is greater than 6%.

c. The periodic rate of interest is 1.5% and the effective rate of interest is greater than 6%.

d. The periodic rate of interest is 3% and the effective rate of interest is 6%.

e. The periodic rate of interest is 6% and the effective rate of interest is also 6%.

____ 11. Last year Toto Corporation's sales were $225 million. If sales grow at 6% per year, how large (in millions) will they be 5 years later?

a. $271.74

b. $286.05

c. $301.10

d. $316.16

e. $331.96

____ 12. You deposit $1,000 today in a savings account that pays 3.5% interest, compounded annually. How much will your account be worth at the end of 25 years?

a. $2,245.08

b. $2,363.24

c. $2,481.41

d. $2,605.48

e. $2,735.75