What is the periodic rate

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Reference no: EM131438819

What is the periodic rate if the nominal rate is 8.65% compounded monthly?

Solve the Time Value of Money Problems -

Show inputs and final answer. Show all your work for full credit.

1. You want to save your money for a down-payment on a home in ten years.  You currently have $5,000 invested today at a 5% rate compounded annually. You plan to deposit $1000 at the end of each year for ten years. What is the maximum amount you will have at the end of ten years?

2. You find out you will inherit $100,000 in six years. If the current interest rate is 5% compounded quarterly, what is the present value of your inheritance?

3. You plan to deposit the following amounts in your savings account at the beginning of each year. In Year 1, you plan to deposit $3000. In year 2 and Year 3, you plan to deposit $4000 and in Year 4 and 5, you plan to deposit $5000. Assume the savings account earns 3.5% compounded annually. If you do as you plan, how much will you have at the end of ten years?

4. You plan to deposit the following amounts in your savings account at the beginning of each year. In Year 1, you plan to deposit $3000. In year 2 and Year 3, you plan to deposit $4000 and in Year 4 and 5, you plan to deposit $5000. Assume the savings account earns 3.5% compounded semiannually. If you do as you plan, how much will you have at the end of ten years?

5. You deposit equal payments of $1000 in the bank for the next 5 years only. Assume the payments are made at the end of the year. What is the interest rate that you would earn if you have $6,200 at the end of five years? Assume annual compounding.  Does your equal payment period match the compounding period?

6. Assume you receive payments from an investment at the end of each year. What is the present value of an investment that promises to pay the following: $240 received at the end of each year for 3 years. Assume an 8% interest rate compounded semiannually. Does your equal payment period match the compounding period?

7. You deposit equal payments of $1000 in the bank for the next 6 years. Assume the payments are made at the beginning of each year. What is the nominal interest rate you earn if you have $8,000 at the end of six years with annual compounding? Does your equal payment period match the compounding period?

8. You deposit equal payments of $1000 in the bank for the next 5 years only. Assume the payments are made at the end of the year. What is the interest rate that you would earn if you have $6,200 at the end of five years? Assume annual compounding.  Does your equal payment period match your compounding period?

9. Answer A or B

A. You deposit equal payments of $1000 in the bank for the next ten years. Assume the payments are made at the beginning of each year. Given you will have $18,000 at the end of ten years with quarterly compounding? What is the effective rate, the nominal rate and the periodic rate of this investment? Does your equal payment period match your compounding period?

B. Loan Amortization - You borrowed $5,000 from the bank. You plan to pay it back in three years. You are charged 6% annual compounding. Complete the following table.

Year

Beginning  Balance

Total Payment

Interest Paid

Principal Paid

Ending Balance

1

 

 

 

 

 

 

2

 

 

 

 

 

 

3

 

 

 

 

 

 

Reference no: EM131438819

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