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Exam 11: Compound Interest and Present Value

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Question 51

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Narrative 11-2 Solve the following problems using either Tables 11-1 or 11-2 from your text. When necessary, create new table factors. (Round new table factors to five decimal places, round dollars to the nearest cent and percents to the nearest hundredth of a percent) -Refer to Narrative in your text 11-2. Andre Harper invested $25,000 at 12% interest compounded quarterly for 21 months. What amount of compound interest did he earn?

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Question 52

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Narrative 11-1 Solve the following problems using either Tables 11-1 or 11-2 from your text. When necessary, create new table factors. (Round new table factors to five decimal places, round dollars to the nearest cent and percents to the nearest hundredth of a percent) -Refer to Narrative in your text 11-1. Seymour wants to have $10,500 in 9 years. Calculate how much he should invest now at 6% interest, compounded quarterly in order to reach this goal.

A) $6,139.38
B) $6,143.45
C) $6,361.01
D) $6,270.47

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Question 53

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Narrative 11-2 Solve the following problems using either Tables 11-1 or 11-2 from your text. When necessary, create new table factors. (Round new table factors to five decimal places, round dollars to the nearest cent and percents to the nearest hundredth of a percent) -Refer to Narrative in your text 11-2. Martina Lynch estimates she will need $30,000 to set up a law office in five years when she graduates from law school. How much interest will she earn on her investment if she can invest today at 16% interest compounded quarterly?

Find the total number of compounding periods and the interest rate per period: $\begin{array} { l l l l l } \text { Term of } & \text { Nominal } & \text { Interest } & \text { Compounding } & \text { Rate per } \\\text { Investment } & \text { Rate } & \text { Compounded } & \text { Periods } & \text { Period } \\3 \text { years } & 18 \% & \text { monthly } &------ &----- \\\end{array}$

The stated interest rate is the real or true rate of return on an investment.

Narrative 11-1 Solve the following problems using either Tables 11-1 or 11-2 from your text. When necessary, create new table factors. (Round new table factors to five decimal places, round dollars to the nearest cent and percents to the nearest hundredth of a percent) -Refer to Narrative in your text 11-1. Julia wants to have $11,500 in 10 years. Calculate how much she should invest now at 6% interest, compounded quarterly in order to reach this goal.

Narrative 11-1 Solve the following problems using either Tables 11-1 or 11-2 from your text. When necessary, create new table factors. (Round new table factors to five decimal places, round dollars to the nearest cent and percents to the nearest hundredth of a percent) -Refer to Narrative in your text 11-1. Simon invests $19,500, at 9% interest, compounded annually for 11 years. Calculate the compound amount for his investment.

Narrative 11-2 Solve the following problems using either Tables 11-1 or 11-2 from your text. When necessary, create new table factors. (Round new table factors to five decimal places, round dollars to the nearest cent and percents to the nearest hundredth of a percent) -Refer to Narrative in your text 11-2. Eduardo wants to have $17,500 in 9 years. Calculate how much he should invest now at 8% interest, compounded quarterly in order to reach his goal.

The Annual percentage rate is the advertised or stated interest rate of an investment or loan. It is the rate used to calculate the compound interest. ​

Narrative 11-1 Solve the following problems using either Tables 11-1 or 11-2 from your text. When necessary, create new table factors. (Round new table factors to five decimal places, round dollars to the nearest cent and percents to the nearest hundredth of a percent) -Refer to Narrative in your text 11-1. Al invests $5,500, at 6% interest, compounded monthly for one year. Calculate the annual percentage yield for his investment. (Round the annual percentage yield to the nearest hundredth percent)

Compound interest yields considerably lower interest than simple interest.

Narrative 11-1 Solve the following problems using either Tables 11-1 or 11-2 from your text. When necessary, create new table factors. (Round new table factors to five decimal places, round dollars to the nearest cent and percents to the nearest hundredth of a percent) -Refer to Narrative in your text 11-1. George invests $12,500, at 12% interest, semiannually for 12 years. Calculate the compound amount for his investment.

Narrative 11-1 Solve the following problems using either Tables 11-1 or 11-2 from your text. When necessary, create new table factors. (Round new table factors to five decimal places, round dollars to the nearest cent and percents to the nearest hundredth of a percent) -Refer to Narrative in your text 11-1. Calculate the compound interest on an investment of $18,000 at 8%, interest compounded quarterly, for 15 months.

The idea that money "now," or in the present, is more desirable than the same amount of money in the future because it can be invested and earn interest as time goes by is referred to as "time value of money." ​

Using Table 11-1 from your text, calculate the compound amount and compound interest for the investment, rounding to the nearest cent. $\begin{array} { l l l l l l } & \text { Term of } & \text { Nominal } & \text { Interest } & \text { Compound } & \text { Compound } \\\text { Principal } & \text { Investment } & \text { Rate } & \text { Compounded } & \text { Amount } & \text { Interest } \\\$ 600 & 2 \text { years } & 12 \% & \text { monthly } &------ & -------\\\end{array}$

Narrative 11-2 Solve the following problems using either Tables 11-1 or 11-2 from your text. When necessary, create new table factors. (Round new table factors to five decimal places, round dollars to the nearest cent and percents to the nearest hundredth of a percent) -Refer to Narrative in your text 11-2. You wish to have $35,000 in 6 years. How much should you invest now at 6% compounded annually in order to have $35,000, in 6 years?

To find the amount that must be deposited today to result in a given amount in five years, the Present Value Table Factor would be used.

Compound interest is interest that is applied a number of times during the term of a loan or investment; interest paid on the principal and previously earned interest.​

Narrative 11-2 Solve the following problems using either Tables 11-1 or 11-2 from your text. When necessary, create new table factors. (Round new table factors to five decimal places, round dollars to the nearest cent and percents to the nearest hundredth of a percent) -Refer to Narrative in your text 11-2. What is the present value of $36,400 in $1 \frac { 1 } { 4 }$ years if the interest rate is 8% compounded quarterly?

Manually calculate the compound amount and compound interest for the investment, rounding to the nearest cent: $\begin{array} { l l l l l l } & \text { Term of } & \text { Nominal } & \text { Interest } & \text { Compound } & \text { Compound } \\\text { Principal } & \text { Investment } & \text { Rate } & \text { Compounded } & \text { Amount } & \text { Interest } \\\$ 15,000 & 2 \text { years } & 8 \% & \text { semiannually } &-------- &------ \\\end{array}$