IET3424_Homework#2_Chapter 4 and 5_Problems_Spring 2019.doc

IET3424_Homework#2_Chapter 4 and 5_Problems_Spring 2019.doc...

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Homework #2 Chapter 4 Nominal and Effective Interest Rates Chapter 5 Present Worth Analysis Instructions: Solve the following problems (3 problems) . Remember to show all your assumptions and calculations . You will not receive any credit for submitting only the answers. You can submit your homework in the Word file provided or Excel file. Submit your file with your complete homework to the dropbox created for this assignment. **If handwriting, student's handwriting must be legible** Due Date: 2/21/2019 by 11:59 p.m. ET 1) What is the future worth 4 years from now of a present cost of $150,000 to Hydron, Inc., at an interest rate of 24% per year compounded monthly? (25 points) (Source: Blank and Tarquin, 2 nd edition) Solution: = 150,000 (1+0.24/12) 12*4 = 150,000 (1+0.02) 48 =150,000 * (1.02) 48 = $388,060.5578 2) What effective interest rate per year, compounded continuously, is equivalent to a nominal rate of 7% per year? Solve by formula. (25 points) Solution: Effective interest rate = 1 - e rt = 1 - e 0.07 * 1 = 1 - e 0.07 = 1 - 1.0725 = 0.0725 or 7.25% So that makes the effective interest rate is 7.25%.
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