Ee Mt Q&a

Topics: Compound interest, Money, Time value of money Pages: 4 (1074 words) Published: July 16, 2013
Midterm Practice Questions
1. What is the future worth of $500, 3 years from now, with an interest rate of 12% compounded weekly? 2. What is the future worth of $500, 5 years from now, with an interest rate of 12% compounded quarterly? 3. Calculate the interest rate that you would use for the following situations (there is no need to draw a cashflow diagram). a) Quarterly payments and 20% interest

b) Quarterly payments and 12% interest compounded bi-weekly. c) Daily payments and 30% interest compounded weekly.
4. How long will it take any sum to double itself,
a. with an 11% simple interest?
b. with an 11% interest rate, compounded annually?
c. with an 11% interest rate, compounded monthly?
5. Suppose that you make a series of quarterly deposits into a bank account that pays 10% interest compounded monthly. The initial deposit at the end of the first quarter is $1200. The deposit amounts decline by $200 in each of the next four quarters. How much would you have immediately after the fifth deposit? 6. John and Barbara have just opened two savings accounts at their bank. The accounts earn 10% interest compounded daily. John wants to deposit $1300 into his account in one month and then make monthly deposits that would increase by $300 each time, so at the end of the second month it’ll be a $1600 deposit. He will do this for one year. Barbara wants to make monthly deposits of an equal amount for the next year but she starts her deposits at the end of the first month not today. What should be the size of Barbara’s monthly deposits so that the two accounts would have equal balances at the end of that year? 7. You recently obtained a $250,000 mortgage under the following conditions: Amortization period = 20 years (paid off in full in 20 years) Interest = 8%, compounded weekly

Term = 3 years (renew contract with same bank in 3 years)
Payment frequency (to the bank)= monthly.
What is the principal balance at the end of the term (3...
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