Chapter 1 Questions for Course FM
Fall 2005
1.
A fund is earning 5% simple interest.
Calculate the effective interest rate in the 6
th
year.
a.
2.5%
b.
3.0%
c.
4.0%
d.
5.0%
e.
6.0%
2.
A fund is earning 5% simple interest.
The amount in the fund at the end of the 5
th
year is 10,000.
Calculate the amount in the fund at the end of 7 year.
a.
10,800
b.
10,900
c.
11,000
d.
11,100
e.
11,200
3.
Calculate the present value of a payment of 10,000 to be made in 17 years
assuming a simple rate of discount of 3%.
a.
4,900
b.
5,100
c.
5,958
d.
6,050
e.
6,623
4.
Fund A earns interest at a nominal rate of interest of 12% compounded quarterly.
Fund B earns interest at a force of interest δ.
John invested $1,000 in each fund
five years ago.
Today, the amount in Fund A is equal to the amount in Fund B.
Calculate δ.
a.
11.7%
b.
11.8%
c.
11.9%
d.
12.0%
e.
12.1%
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Fall 2005
5.
Fund A earns interest at a nominal rate of interest of 12% compounded quarterly.
Fund B earns interest at a force of interest δ.
John invested $1,000 in each fund
five years ago.
Today, the amount in Fund A is 150% of the amount in Fund B.
Calculate δ.
a.
3.7%
b.
6.0%
c.
6.2%
d.
6.6%
e.
6.8%
6.
Fund A earns interest at a nominal rate of 6% compounded monthly.
Fund B
earns interest at a nominal rate of discount of compounded three times per year.
The annual effective rate of interest earned by both funds is equal.
Calculate the nominal rate of discount earned by Fund B.
a.
1.49%
b.
1.98%
c.
5.93%
d.
5.94%
e.
5.95%
7.
A fund earns interest at a constant force of interest of δ = 0.05.
Calculate the value at the end of five years of 8,000 invested today.
a.
10,210
b.
10,241
c.
10,272
d.
10,500
e.
10,799
8.
A fund earns interest at a force of interest of δ = 0.01t.
Calculate the value at the end of five years of 8,000 invested today.
a.
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 Spring '10
 Dr.K
 Nominal Interest Rate, a. b. c., b. c. d., C. D. E.

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