FINANCE- ACC 611: Quiz 2. Questions and Answers. 100% Worked Solutions

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Question 1 The value of a dollar invested at positive interest rate grows over time. The correct answer is 'True'. Question 2 The further in the future you receive a dollar, the more it is worth t... oday. Question 3 Compounding is the process by which interest earned on an investment is reinvested so that in future periods, interest is earned on the interest as well as the principal. Question 4 The higher the interest rate on an investment, the greater the amount of money that is accumulated for any time period. . Question 5 How long (in years, to 2 decimal places) will it take for $1100 to accumulate to $1940 at 3.9% p.a. simple interest? Question 6 Find the rate of simple interest p.a. if $1610 accumulates to $1720 in 10 months. (as a %, 2 decimal places) Question 7 Eugene wants to buy an artwork in 90 days' time that is worth $10 000. He deposits $X into the bank that pays a simple interest of 8.4% p.a. Calculate X, correct to the nearest cent. Assume 365 days in a year. Question 8 How long (in years) will it take for $20,000 to grow to $25,000 at 9%p.a. simple interest? (in years correct to two decimal places) Question 9 A 180-days promissory note (this is similar to a bank bill) will mature for $100,000 plus simple interest at 7%p.a. Calculate the maturity value of the note. (Compute the answer to 2 decimal places.) Question 10 Find the present value if $7300 is due at the end of 5 years and the nominal rate of interest is 8.7% p.a. convertible 4 times a year. (Make sure that your answer for the present value is less than 7300.) Question 11 Calculate the present value of $10,000 due to be paid 12 years from now. The interest rate to use in the calculation is i12 = 6% compute the answer correct to 2 decimal places Question 12 How much would Marina have to deposit today in an investment fund which guarantees to pay 7.1% p.a. payable 12 times a year, to have $2300 in 4.5 years time? The 2300 payment needs to be moved back 4.5 years or 54 months. The interest rate per month is 0.071/12. Question 13 Find the future value if the principal is $6400, the nominal rate of interest is 7.8% p.a. convertible 2 times a year and the term of the investment is 6 years. (The wording means that j 2 = 7.8%, hence the half-yearly rate is 7.8%/2.) Question 14 Find the future value of $12,000 over 5 years at 4% p.a. payable annually. (Check that the future value becomes slightly larger as the frequency of the interest payment increases in the following question.) Question 15 Find the future value of $12,000 over 5 years at 4% p.a. payable quarterly. Question 16 Find the future value of $1,200 over 7 years at 9% p.a. payable 1. annually 2. half-yearly 3. quarterly 4. monthly 5. daily (Check that the future value becomes slightly larger as the frequency of the interest payment increases.) Question 17 Select which of the following interest rates will give the highest equivalent annual interest rate. You should not need to do any calculations to answer this. Select one: a. i2 = 5% b. i4 = 5% c. i12 = 5% Question 18 Kate has earned $2133 in interest over 2.5 years in her savings account. She now has $24108. Calculate the effective annual compound interest rate, in % p.a., correct to 2 decimal places. Question 19 I currently have $1779 and wish to accumulate $14799. If the interest rate is 8.7% p.a. effective, how many years, correct to 2 decimal places, do I need to attain my goal? Question 20 If the interest rate is 9.2% p.a. convertible 4 times a year, find the equivalent effective annual rate of interest. (as a %, to 2 decimal places) (Check that your calculated value of j1 is slightly larger than the j4 value of 9.2%.) Question 21 If the rate of interest is 7.3% p.a. effective, find the equivalent nominal rate of interest p.a. if it were payable 4 times a year. (as a %, to 2 decimal places) (j4 is required and not the quarterly rate. Check that your calculated value of j4 is slightly smaller than the j1 value of 7.3%.) Question 22 If the interest rate is 5.6% p.a. convertible 2 times a year, find the equivalent nominal rate of interest p.a. if it were payable 12 times a year. (as a %, to 2 decimal places) (j12 is required and not the monthly rate. Check that your calculated value of j12 is slightly smaller than the j2 value of 5.6%.) Question 23 How long does it take for money to double itself at the interest rate i4 =14% i.e. How long till $100 accumulates to $200 at this rate? give your answer in years, to 4 decimal places Question 24 Q5 A sum of $5,000 is invested for 8 years. Calculate the future value at time 8 years if interest is at rate i2=6% for the first 3 years followed by interest at rate i4=8% for the last 5 years. Give your answer accurate to 2 decimal places. Question 25 A promissory note (this is similar to a bank bill) is issued with a term of 180-days and it will mature for $100,000 plus simple interest at 7%p.a. Seventy days after the issue date, the original owner sold the note to Tiffany for $97,651.13. Calculate the rate of simple interest p.a. used by Tiffany in calculating her purchase price. (The answer should be expressed as a percentage correct to 2 decimal places.) [Show More]

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