s. Mary invested $20,000 into a bond fund 10 years ago. This fund had a track re

Question

s. Mary invested $20,000 into a bond fund 10 years ago. This fund had a track record of providing a very good return. She checked with her investment broker and found out that she has an accumulation of $36,000 in the account. What is the annual interest rate Mary earned in this investment? (10) A. 3.72% B. 6.05% C. 5.03% D. 4.3190% 6. Nicole wishes to double her interest rate that will enable her wish to come true. Assuming weekly, what is nominal interest offered by the financial institution? (8) A. 30% investment in 4 years. If a financial institution offers her an the interest is compounded B. 20.75% C. 17.4% D. 21.5% 7. Paul invested $10,000 at time "O" in a mutual fund that guaranteed a return of 5% per year and after 5 years invested $20,000 in another guaranteed fund at 4 % return. After 20 years since the first investment, How much money in total he will have in both the funds? (10) A. $59,781 B. $65,239 C. $89,813 D. S63,372 8. It is anticipated that a high tech equipment will cost $500,000 two years from now. If money is worth 12%, what will be the cost of the machine 10 years from now? (8) A. $1,553,000 B. $1,569,000 C. $1,463,100 D. $1,238,000 9. In order to have an accumulation of $100,000 twelve years from today, how much does John Dean need to invest in a mutual fund that pays 34% per month? (8)

Explanation / Answer

5.

B.

Working note:

36000 = 20000*(1+R)^10

36000/20000 = 1.8 = (1+R)^10

R = 1.8^(1/10) – 1

R = 6.05%

6.

C.

Working note:

2= 1*(1+R)^4

R = 2^(1/4) – 1 = 18.92%

Let, nominal interest rate = K

Then,

18.92% = (1+K/52)^52 – 1

1.1892^(1/52) - 1 = K/52

K = .3338*52 = 17.36% or 17.4%

7.

B

Working note:

Future value = 10000*(1+5%)^20 + 20000*(1+4.5%)^15

Future value = $65238.63 or $65239

8.

D.

Working note:

Future value = 500000*(1+12%)^8

Future value = $1237982 or $1238000 approx.

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