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IOE+201+Homework+2 - Homework#2 IOE 201 Economic Decision...

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1 Homework #2 IOE 201 - Economic Decision Making Homework #2: Answers are due Wednesday, September 23, 2009 2 pages, 10 questions: 1. If interest is compounded quarterly, and the effective annual interest rate is 12.56%, (a) What is the interest rate per quarter? (b) What is the nominal annual interest rate? 2. Textbook, page 111, problem 3.1 : A loan company offers money at 1.5% per month compounded monthly. (a) What is the nominal interest rate? (b) What is the effective interest rate? 3. $1,000 is invested for 20 years at interest rate 15% per year, compounded annually. (a) Plot the future worth against the number of years from 0 to 20 years. (b) Show that the amount at the end of 20 years is over four times the amount at the end of 10 years. 4. Textbook, page 75, problem 2.17 : If $1,000 is invested now, $1,500 two years from now, and $2,000 four years from now at an interest rate of 8% compounded annually, what will be the total amount in 10 years? 5. Plot (on the same chart) curves of the difference ( r eff - r ) against r ( r from 0% to 20%), where r eff = effective annual interest rate and r
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