Reference no: EM132454574
Types of Interest
Question 1 You deposit $10,000 in a savings account that cams 7.5% simple interest per year. What is the min-imum number of years you must wait to double your balance? Suppose instead that you deposit the $10,000 in another savings account that earns 7% interest compounded yearly. How many years will it take now to double your balance?
Question 2 Compare the interest earned by $5,000 for five years at 6% simple interest with that earned by the same amount for five years at 6% compounded annually.
Question 3 You are considering investing $3,000 at an in-terest rate of 8% compounded annually for five years or investing the $3,000 at 9% per year simple interest for five years. Which option is better?
Question 4 You are about to borrow $10,000 from a bank at an interest rate of 10% compounded annually. You are requited to make five equal annual repayments in the amount of $2,638 per year, with the first repay-ment occurring at the end of year I: Show the inter-est payment and principal payment in each year.
Equivalence Concept
Question 5 Suppose you have the alternative of receiving either $18,000 at the end of five years or P dollars today. Currently, you have no need for money, so you could deposit the P dollars in a bank that pays 5% interest. What value of P would make you indif-ferent in your choice between P dollars today and the promise of $18,000 at the end of five years?
Question 6 Suppose that you are obtaining a personal loan from your uncle in the amount of $25,000 (now) to be repaid in three years to cover some of your college expenses. If your uncle usually earns 8% intere-st (an-nually) on his money, which is invested in various sources, what minimum lump-sum payment three years from now would make your uncle happy?
Question 7 If you deposited $100 now (n = 0) and $200 two years from now (re = 2) in a savings amount that pays 10% annual interest, how much would you have at the end of year 10?
Question 8 At what interest rate arc these two transactions equivalent?