Deck 18: Interest Rates and Compounding

Question 1

Assume one bank offers you a nominal annual interest rate of 6% compounded daily while another bank offers you continuous compounding at a 5.9% nominal annual rate.You decide to deposit $1,050 with each bank.Exactly two years later you withdraw your funds from both banks.What is the difference in your withdrawal amounts between the two banks? Assume 365 days in a year.Do not round your intermediate calculations

A) $1.77
B) $2.24
C) $2.35
D) $2.71
E) $2.94

Answer 1

C

Question 2

How much should you be willing to pay for an account today that will have a value of $1,000 in 24 years under continuous compounding if the nominal rate is 8.20%?

A) $111.79
B) $139.74
C) $156.50
D) $171.88
E) $167.68

Answer 2

B

Question 3

You have $5,436.60 in an account that pays 9.40% interest,compounded continuously.If you deposited some funds 12 years ago,how much was your original deposit? Round your answer to the nearest dollar.

A) $1,637
B) $1,760
C) $1,566
D) $2,006
E) $1,461

Answer 3

B

Question 4

​For a 10-year deposit,what annual rate payable semiannually will produce the same effective rate as 5.00% compounded continuously? Do not round your intermediate calculations.

A) 4.46%
B) 5.06%
C) 4.10%
D) 4.81%
E) 4.91%

Question 5

If you receive $15,000 today and can invest it at a 4.25% annual rate compounded continuously,what will be your ending value after 20 years?

A) $41,060.80
B) $43,517.43
C) $35,094.70
D) $28,426.71
E) $36,849.44

Question 6

You place $1,000 in an account that pays 7% interest compounded continuously.You plan to hold the account exactly 3 years.Simultaneously,in another account you deposit money that earns 7.40% compounded semiannually.If the accounts are to have the same amount at the end of the 3 years,how much of an initial deposit do you need to make now in the account that pays 7.40% interest compounded semiannually? Do not round your intermediate calculations.

A) $1,150.77
B) $882.92
C) $992.04
D) $1,220.21
E) $744.03

Question 7

In six years' time,you are scheduled to receive money from a trust established by your grandparents.When the trust matures there will be $100,000 in the account.If the account earns 5.75% compounded continuously,how much is in the account today?

A) $82,153.56
B) $69,405.59
C) $61,615.17
D) $70,822.04
E) $59,490.51

Question 8

You need a down payment of $17,200 in order to purchase your first home 4 years from today.You currently have $14,014 to invest.In order to achieve your goal,what nominal interest rate,compounded continuously,must you earn on this investment? Do not round your intermediate calculations.

A) 5.48%
B) 5.12%
C) 3.84%
D) 4.46%
E) 6.20%