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Answer & Explanation:WK 5 Assignment.docx
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True or False
1. True or false. When simple interest is used, the accumulated amount is a linear function of time.
2. True or false. Compound interest that is converted once a year is the same as simple interest.
3. True or false. If interest is compounded annually, then the effective rate of interest is the same
as the nominal rate of interest.
4. True or false. The present value is always smaller than the future value.
5. True or false. The future value of an annuity can be found by adding together all the payments
that are paid into an account.
6. True or false. The periodic payment R where
and P is the loan amount and i is
the interest per period that will amortize the loan at the end of the term comprising n periods.
7. True or false. A sinking fund is the accumulated amount to be realized at some future date (the
end of the term) when a fixed number of periodic payments are paid into an account earning
interest at the rate of i per period.
1.
Find the simple interest on a $400 investment made for 5 years at an interest rate of 7%/year.
What is the accumulated amount?
A) The simple interest is $140; the accumulated amount is $540.
B) The simple interest is $115, the accumulated amount is $515.
C) The simple interest is $120, the accumulated amount is $520.
D) The simple interest is $125, the accumulated amount is $555.
2.
If the accumulated amount is $3,720 at the end of 3 years and the simple rate of interest is
8%/year, what is the principal?
A) The principal is $3,500.
B) The principal is $3,360.
C) The principal is $3,000.
D) The principal is $3,200.
3.
Find the accumulated amount A if the principal P = $2,000 is invested at the interest rate of r =
6% per year for t = 6 years, compounded annually.
A) The accumulated amount is $3,508.28.
B) The accumulated amount is $3,194.16.
C) The accumulated amount is $2,837.04.
D) The accumulated amount is $2,708.89.
4.
Find the accumulated amount A if the principal P = $11,000 is invested at the interest rate of r =
5% per year for t = 5.5 years, compounded quarterly.
A) The accumulated amount is $14,585.32.
B) The accumulated amount is $13,785.93.
C) The accumulated amount is $14,100.05.
D) The accumulated amount is $14,457.17.
5.
Determine the simple interest rate at which $1,500 will grow to $1,550 in the 8 months. Round
your answers to the nearest tenth of percent.
A) The interest rate is 5%/year.
B) The interest rate is 4.33%/year.
C) The interest rate is 4.76%/year.
D) The interest rate is 66.67%/year.
E) The interest rate is 3.06%/year.
6.
Find the present value of $40,000 due in 4 years at the given rate of interest 8%/year
compounded monthly.
A) The present value is $28,948.67.
B) The present value is $29,433.94.
C) The present value is $29,076.82.
D) The present value is $29,748.06.
7.
In order to help finance the purchase of a new house, the Abdullahs have decided to apply for a
short-term loan (a bridge loan) in the amount of $140,000 for a term of 1 mo. If the bank charges
simple interest at the rate of 12%/year, how much will the Abdullahs owe the bank at the end of
the term?
A) $141,400
B)
$140,012
C) $146,800
D) $144,900
8.
The Kwans are planning to buy a house 6 years from now. Housing experts in their area have
estimated that the cost of a home will increase at a rate of 6%/year during that period. If this
economic prediction holds true, how much can the Kwans expect to pay for a house that
currently costs $160,000?
A) $218,199
B) $221,562
C) $230,490
D) $226,963
9.
The manager of a money market fund has invested $4.2 million in certificates of deposit that pay
interest at the rate of 5.4%/year compounded quarterly over a period of 5 years. How much will
the investment be worth at the end of 5 years?
A) $214,986.69
B) $214,968.69
C) $241,986.69
D) $2,986.69
10.
Find the effective rate corresponding to nominal rate 6% / year compounded monthly. Round the
answers to the nearest hundredth of percent.
A) 6.538%
B) 5.858%
C) 6.598%
D) 6.168%
11.
Find the interest rate needed for an investment of $4,000 to grow to an amount of $5,000 in 4 yr
if interest is compounded continuously. Please round the answer to the nearest hundredth of
percent.
A) 5.58 %/yr
B) 5.70 %/yr
C) 6.63 %/yr
D) 5.01 %/yr
E) 5.92 %/yr
12.
Anthony invested a sum of money 6 yr ago in a savings account that has since paid interest at the
rate of 7%/year compounded quarterly. His investment is now worth $19,713.77. How much did
he originally invest? Please round the answer to the nearest cent.
A) $13,000.01
B) $12,500.01
C) $14,000.01
D) $11,500.01
E) $11,000.01
13.
Georgia purchased a house in 1998 for $220,000. In 2003 she sold the house and made a net
profit of $50,000. Find the effective annual rate of return on her investment over the 5-yr period.
Please round the answer to the nearest tenth of percent.
A) 3.7%/yr
B) 3.1%/yr
C) 4.4%/yr
D) 4.2%/yr
E) 5.6%/yr
14.
Find the amount of an ordinary annuity of 10 yearly payments of $1,800 that earn interest at 10%
per year, compounded annually.
A) $4,668.74
B) $28,687.36
C) $87,798.04
D) $3,600.00
15.
Robin, who is self-employed, contributes $4,000/year into a Keogh account. How much will he
have in the account after 15 years if the account earns interest at the rate of 6.5%/year
compounded yearly?
A) $96,728.68
B) $10,287.36
C) $158,267.14
D) $3,771.28
16.
If a merchant deposits $1,500 annually at the end of each tax year in an IRA account paying
interest at the rate of 10%/year compounded annually, how much will she have in her account at
the end of 25 years? Round your answer to two decimal places.
A) $16,252.06
B) $147,520.59
C) $5,250.00
D) $34,663.65
17.
Find the present value of an ordinary annuity of $600 payments each made quarterly over 5 years
and earning interest at 4% per year compounded quarterly.
A) $8,154.20
B) $2,671.09
C) $10,827.33
D) $56,916.87
18.
Juan invested $24,000 in a mutual fund 5 years ago. Today his investment is worth $34,616. Find
the effective annual rate of return on his investment over the 5-year period.
A) 10.3%/year
B) 8%/year
C) 83%/year
D) 8.3%/year
19.
Find the amount of an ordinary annuity for 5 years of quarterly payments of $2,200 that earn
interest at 4% per year compounded quarterly.
A) $11,222.21
B) $65,511.77
C) $48,441.81
D) $2,684.42
20.
Find the present value of the ordinary annuity. Please round the answer to the nearest cent.$2,000
per semiannual period for 7 yr at 12%/year compounded semiannually
A) P = $18,589.97
B) P = $17,913.54
C) P = $20,003.52
D) P = $13,147.80
E) P = $9,629.07
…
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