act240 test1 with solutions

# act240 test1 with solutions - Family name comma personal...

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ACT240 F09 TT1 v06 Privacy Code A post test for web Page 2 of 10 1. (Assignment Sept 18, 2009) Mike receives cash flows of 100 today, 200 in one year, and 100 in two years. The present value of these cash flows is 383.48 at an annual effective rate of interest i . Calculate i . (A) Less than 0.03000 (B) 0.03000 but less than 0.03500 (C) 0.03500 but less than 0.04000 (D) 0.04000 but less than 0.04500 (E) 0.04500 or more (D) Solution: 383.48=100 + 200v + 100v 2 100v 2 + 200v – 283.48=0 v = {-200 +- sqrt(40000+4*100*283.48)}/(2*100) = 0.95826 (choosing positive root) i=(1/v -1)=0.043553
ACT240 F09 TT1 v06 Privacy Code A post test for web Page 3 of 10 2. Carl puts \$10,000 into a bank account that pays an effective rate of 6% for ten years, with interest credited at the end of each year. If a withdrawal is made during the first five and one-half years, a penalty of 5% of the total withdrawal is made. Carl withdraws enough to put K in his pocket (after paying any penalty) at the end of each of years 4, 5, 6 and 7. The balance in the

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act240 test1 with solutions - Family name comma personal...

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