There are 69 points for these questions. Katherine deposited $800 at her local c
ID: 2771596 • Letter: T
Question
There are 69 points for these questions.
Katherine deposited $800 at her local credit union in a savingsO $1,451.20 account at the rate of 7.4% paid as simple interest. She will earn $751.20 interest once a year for the next 11 years. If she were to make $863.58 no additional deposits or withdrawals, how much money would $ 1,754.43 the credit union owe Katherine in 11 years? If the credit union pays Katherine an interest rate of 7.4% compounded annually, all other things being equal, how much will Katherine have in her account after 11 years? O $1,754.43 O $859.20 O $1,428.11 O $1,451.20 Before deciding to deposit her money at the credit union, Katherine checked the interest rates at her local bank as well, The bank was paying a nominal interest rate of 7.4% compounded quarterly. If Katherine had deposited $800 at her local bank, how much would she have had in her account after 11 years? O $860.86 O $751.20 O $142.43 O $1,792.15Explanation / Answer
Answer: a) 1451.2 Simple Interest= (Principal*No.of yrs.*Rate of Interest) ie. (800*11*0.074) 651.2 So,Amout= 800+651.2= $ 1451.2 Answer: a) 1754.43 Compounded annually Amount= Principal(1+ Interest rate)^No.of yrs. ie. 800*(1+0.074)^11 1754.434 Answer: d) 1792.15 Compounded Quarterly Amount= Principal(1+ Interest rate/4)^(No.of yrs.*4) ie. 800*(1+(0.074/4))^(11*4) 1792.155 Process of converting present value into its future value is called COMPOUNDING Answer c - the trend between PV & FV of an investment is not one of the variables in computing the above Line C -0% Line B- 9% Line A- 17% Simple & Compound Interest Compound Interest FV=PV(1+I)^n Simple Interest FV=PV+(PV*I*N) TRUE- Compound interest is interest for interest FALSE- Both Compound & Simple interest generate same $ amount of interest by the end of the first year. for a given rate of interest. FALSE - Because the compounding effect is seen from the beginning of the 2nd year itself. Investment Interest rate Expected Future value A 10% S.I 30000+(30000*0.10*8) 54000 NO B 6% C.I 30000*(1+0.06)^8 47815.44 NO C 7% C.I 30000*(1+0.07)^8 51545.59 YES Answer - a) -Present value of future cash flows helps us to know how much we need to invest today so that it will grow to thefuture value at a specified interest rate. 7500=P(1.15)^9 ; So, P= 7500/1.15^9 =2132 7500=P(1.10)^9 ; So, P= 7500/1.10^9 =3181 So, Answer is B - Security with 10% interest has a higher price today 1000=P(1.11)^10 ; So, P= 1000/1.11^10 =352 1000=P(1.11)^9 ; So, P= 1000/1.11^9 =391 So, Answer is A - The investment that matures in 10 yrs. Has alower price today ANSWER : b) - Present value of future cash flows decreases if the interest rate increases ie. 1/1.11(0.9009) is > 1/1.15(0.8696) Answer :d) 4.00% 9200(1+0.04)^5= 11193.2067 ie. 11193.21 63265.95=50000*(1.04)^n Solving in an online CI calculator n=6 yrs.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.