Ch1TVAssessmentQuizHandout

Ch1TVAssessmentQuizHandout - Loan Amort. Chapter 1 Time...

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Chapter 1 Time Value Assessment Quiz Loan Amort.
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Using the BAII+ If you’ve lost the User’s Guide : http://education.ti.com/educationportal/appsde
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Using the BAII+ Set P/Y to 1 2 nd I/Y (i.e. P/Y) 1 [Enter] (i.e. SET) CE/C CE/C
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Using the BAII+ Make sure PMTs are set to END. 2 nd PMT (i.e. BGN) (Should say “END”) If it says “BGN”: press 2 nd [ENTER] (i.e. SET) Now it should say “END” Press CE/C
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Using the BAII+ Set # of decimal places to at least 4. 2 nd decimal point key (or Format) 4 [Enter] CE/C CE/C
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1. If you deposited $1000 today in an account that pays 5% interest compounded annually, how much will be in that account at the end of 10 years? How much interest will the account earn the 1st year? 0 10 1000|------------------------/\/\---------| ? PV FV
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n = 10 i = 5 PV = 1000 CPT FV 1628.89 0 10 1000|---------------/\/\---------| 1628.89
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Interest first year can be calculated using the simple interest formula: i = Prt (or principal x rate x time) i = 1000 x .05 x 1 i = 50 What principal will be used to calculate the 2 nd year’s interest? 1000 + 50 = 1050 1050 x .05 x 1 = 52.50
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What if the interest had not been compounded . That is, if this account paid simple interest, how much would the FV be at the end of 10 years? I = P r t = $1000 x .05 x 10 = $500 FV = P + I = $1000 + $500 FV = $1500 FV w/compounding was $ 1628.89 What accounts for the difference?
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Ch1TVAssessmentQuizHandout - Loan Amort. Chapter 1 Time...

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