1. What is the present value of 28,000 deposited at the end of eac year for four

Question

1. What is the present value of 28,000 deposited at the end of eac year for four years, if the simple rate of interest is 4.75%?

A) 100298.16

B) 100318.16

C) 100338.16

D) 100358.16

E) None of the above

2. First Bank of Midesto Medeque pays a 5.45% nominal rate of interest compounded weekly. What is the effective rate of interest?

A. 5.60%

B. 5.65

C. 5.70

D. 5.75

E. None of the above

3. What is the present value of 120,000 deposited today if the rate of interest is 5% compounded semiannually and you intend to keep that account for five years?

A) 120000

B) 153710.15

C) 153810.15

D) 153910.15

E) None of the above

Explanation / Answer

Answer:

1. Option - C - $100,338.16

Present value = Future value /(1+r*n) , where r= rate of interest, n = No of periods

2. Effective interest rate = (1+ r/n)n -1 , where = r = Rate of interest and n = no of periods

= (1+ 0.0545/52)52 weeks -1 = 5.60% (option -A)

3. Present value of an amount deposited at t =0, will be the value itself. In the given problem it is $120,000 (option -A)

Years Amount Present value discount factor (1+r.*n)- Simple Interest Present values 1 28000 0.954653938 26730.31 2 28000 0.913242009 25570.78 3 28000 0.875273523 24507.66 4 28000 0.840336134 23529.41 100338.16

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