Sidney has an account with a balance today of 6000. The account pays 3% annual compound...
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Sidney has an account with a balance today of £6000. The account pays 3% annual compound interest, compounded annually. How long will it take for the account balance to be £8000? (3 marks) 2. Loreen owes $4000 today on some money that she borrowed exactly 4 years ago that charges 2% simple interest each quarter. How much did Loreen borrow 4 years ago? (2 marks) Chandra has an account that pays the values indicated on the cash flow diagram below. If the interest rate is 4% nominal annual, compounded monthly, calculate the present value of this investment. (7 marks) 3. $5000 1 $4000 $4200 2 4. An account pays 4.5% nominal annual interest compounded monthly. Bill has an investment in this account that pays dividends at the end of each period, as shown below. Using a 2 year effective interest rate, calculate the present value of this investment. (5 marks) $6000 3 $6400 $8500 5. You have $3000 today to deposit into an account. The accounts below are available to you. Calculate the value in the account 3 years from today for each case. Which account would you choose? Why? (9, 2 for each question and 1 for your choice and reason) (a) 3% nominal annual, compounded quarterly. (b) (c) (d) 2.8% nominal annual, compounded monthly. 2.75% nominal annual, compounded daily (assume no leap year). 2.7% nominal annual, compounded continuously. 6. A Government of Pluto bond with a face value of $20,000 pays 4% annual simple interest at the end of each year for 5 years. Draw the cash flow diagram for the bond. (3 marks) 7. There are two possible investments A and B. Their case flows are shown in the table below. Illustrate these cash flows over 12 months in two cash flow diagrams. Show only the net cash flow in each period. (6 marks, 3 each) Outflow Inflow Investment A $24000 now, $1200 each quarter, and a closing fee of $2400 at the end of month 12. $8000 monthly at the end of $8500 at the end of the first each month. month, and from that point on, $500 more than the previous month. 8. DecryptCo has $50,000 to invest in a bank account. How long will it take (years) the amount in a bank account to double itself under the following circumstances? (a) (b) (c) (d) Investment B $4500 every two months, starting two months from now, $3000 each quarter. 4% nominal annual, compounded quarterly interest rate? (2 marks) 3.85% nominal annual, compounded monthly interest rate? (2 marks) 4.2% nominal annual, compounded semi-annually interest rate? (2 marks) 3.8% nominal annual, compounded continuously? (2 marks) Sidney has an account with a balance today of £6000. The account pays 3% annual compound interest, compounded annually. How long will it take for the account balance to be £8000? (3 marks) 2. Loreen owes $4000 today on some money that she borrowed exactly 4 years ago that charges 2% simple interest each quarter. How much did Loreen borrow 4 years ago? (2 marks) Chandra has an account that pays the values indicated on the cash flow diagram below. If the interest rate is 4% nominal annual, compounded monthly, calculate the present value of this investment. (7 marks) 3. $5000 1 $4000 $4200 2 4. An account pays 4.5% nominal annual interest compounded monthly. Bill has an investment in this account that pays dividends at the end of each period, as shown below. Using a 2 year effective interest rate, calculate the present value of this investment. (5 marks) $6000 3 $6400 $8500 5. You have $3000 today to deposit into an account. The accounts below are available to you. Calculate the value in the account 3 years from today for each case. Which account would you choose? Why? (9, 2 for each question and 1 for your choice and reason) (a) 3% nominal annual, compounded quarterly. (b) (c) (d) 2.8% nominal annual, compounded monthly. 2.75% nominal annual, compounded daily (assume no leap year). 2.7% nominal annual, compounded continuously. 6. A Government of Pluto bond with a face value of $20,000 pays 4% annual simple interest at the end of each year for 5 years. Draw the cash flow diagram for the bond. (3 marks) 7. There are two possible investments A and B. Their case flows are shown in the table below. Illustrate these cash flows over 12 months in two cash flow diagrams. Show only the net cash flow in each period. (6 marks, 3 each) Outflow Inflow Investment A $24000 now, $1200 each quarter, and a closing fee of $2400 at the end of month 12. $8000 monthly at the end of $8500 at the end of the first each month. month, and from that point on, $500 more than the previous month. 8. DecryptCo has $50,000 to invest in a bank account. How long will it take (years) the amount in a bank account to double itself under the following circumstances? (a) (b) (c) (d) Investment B $4500 every two months, starting two months from now, $3000 each quarter. 4% nominal annual, compounded quarterly interest rate? (2 marks) 3.85% nominal annual, compounded monthly interest rate? (2 marks) 4.2% nominal annual, compounded semi-annually interest rate? (2 marks) 3.8% nominal annual, compounded continuously? (2 marks)
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