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Unformatted text preview: O O O O (9) (9) O O O O O O (6) (6) (7) (7) (8) (8) O O (3) (3) O O O O (5) (5) (4) (4) (1) (1) O O (2) (2) 1) Huntington Bank offers an account that pays 5%, compounded daily. They decide to change to compounding four times a year. What interest rate should they offer to obtain the same annual effective rate as the original account? 1 C i 4 4 = 1 C .05 365 365 1.040604010 = 1.051267381 i d 4 $ 1 C .05 365 365 4 K 1 i := 0.050310228 2) On January 1, I win a prize the pays $P at the beginning of each month for 10 years with the first payment starting immediately. Find $P given that the present value of my prize at 4% interest compounded monthly is $1,000,000. i d .04 12 ; j d 1 C i ; n d 12 $ 10 i := 0.003333333333 j := 1.003333333 n := 120 solve j n K 1 i $ j $ j K n $ X = 1000000, X 10090.87838 3)You borrow $5,000 at the beginning of year 1 at 4% annual effective interest. You pay $1000 at the end of year 1, and $2,000 at the end of year 2, $P at the end of year 3, $400 at the end of year 4, and $400 at the end of year 5, after which you owe nothing. Find P. i d .04; i := 0.04 solve 5000 $ 1 C i 5 = 1000 1 C i 4 C 2000 $ 1 C i 3 C X $ 1 C i 2 C 400 $ 1 C i C 400, X 1708.282128 4) First Bank pays 3% interest, compounded daily. I open an account on January 1 by depositing 10,...
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 Spring '08
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