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Unformatted text preview: SECT ION 8 - Assignment 8-1 Find the interest rates, or rates of return, on each of the following: a. You borrow $700 and promise to pay back $749 at the end of one year. N=1, PMT=0, PV=700, FV=-749, I/Y=7% b. You lend $700 and receive a promise to be paid $749 at the end of one year. Same answer as a except PV=-700 and FV=749 c. You borrow $85,000 and promise to pay back $201,229 at the end of 10 years. N=10, PMT=0, PV=85000, FV=-201229, I/Y=9% d. You borrow $9,000 and promise to make payments of $2,684.80 per year for five years. N=5, PMT=-2684.80, PV=9000, FV=0, I/Y=approximately 15% (14.999) 8-2 The First City Bank pays 7 percent interest, compounded annually, on time deposits. The Second City Bank pays 6.5 percent interest, compounded quarterly. a. Based on effective interest rates, in which bank would you prefer to deposit your money? Effective Rate=7 for First City Bank Effective Rate= (1+.065/4)^4 – 1 =.0666 or 6.67% I would choose the First City Bank because the rate of return is better.I would choose the First City Bank because the rate of return is better....
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