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tut2-1 - FINS 5514 Week 2 Time Value of Money Discounting 1...

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1 FINS 5514 Week 2: Time Value of Money & Discounting 1. Alpha Bank pays interest of 4 percent compounded annually. Beta Bank pays 4 percent simple interest. Which one of the following statements is true if you invest $1,000 in each bank for five years? a. Alpha Bank will pay you a total of $200 in interest over the five years. b. Beta Bank will pay you more interest over the five years than Alpha Bank will. c. Alpha Bank will pay you a total of $216.65 in simple interest. d. Alpha Bank will pay you $16.65 of interest on interest. 2. Martha wants to have $10,000 in her investment account ten years from now. How much does she have to deposit today to achieve her goal if she can earn 8 percent compounded annually? a. $4,631.93 b. $4,665.07 c. $5,259.26 d. $5,589.25 3. Jim has $1,650 saved today. He wants to buy a different vehicle as soon as he has $3,200 saved. How long does Jim have to wait to get his vehicle if he earns 7.5 percent compounded annually? a. 8.67 years b. 9.08 years c. 9.16 years d. 9.23 years 4. Lewis borrows $10,000 today at 8.25 percent compounded annually. The terms
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