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Unformatted text preview: O O O O (5) (5) O O O O (9) (9) (3) (3) (1) (1) O O (6) (6) (8) (8) O O (7) (7) O O O O O O (2) (2) (4) (4) 1) Huntington Bank offers an account that pays 4%, 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 .04 365 365 1 C 1 4 i 4 = 1.040808478 i d 4 $ 1 C .04 365 365 4 K 1 i := 0.040198440 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 3% interest compounded monthly is $1,000,000. i d .03 12 ; j d 1 C i ; n d 12 $ 10 i := 0.002500000000 j := 1.002500000 n := 120 solve j n K 1 i $ j $ j K n $ x = 1000000, x 9631.994490 3)You borrow $5,000 at the beginning of year 1 at 3% 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 .03; i := 0.03 solve 5000 $ 1 C i 5 = 1000 1 C i 4 C 2000 $ 1 C i 3 C P $ 1 C i 2 C 400 $ 1 C i C 400, P 1577.347120 4) First Bank pays 4% interest, compounded daily. I open an account on January 1 by depositing 10,...
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 Spring '08
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 Time Value Of Money, Effective Interest Rate, Interest, Year Three, RC Penney

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