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PROBLEMS FOR TUTORIALS 1 & 2
(January 15
th
nd
)
Question1
Calculate the future value of $2,000 in:
a)
5 years at an interest rate of 5% per year.
b)
10 years at an interest rate of 5% per year.
Question2
Your daughter is currently 8 years old. You anticipate that she will be going to college in
ten years. You would like to have $100,000 in a savings account to fund her education at
that time. If the account promises to pay a fixed interest rate of 3% per year, how much
money do you need to put into the account today to ensure that you will have $100,000 in
ten years?
Question3
Your grandfather put some money in an account for you on the day you were born. You
are now 18 years old and are allowed to withdraw the money for the first time. The
account currently has $3996 in it and pays an 8% interest rate.
a)
How much money would be in the account if you left the money there until your 25
th
birthday?
b)
How much money did your grandfather originally put in the account?
Question4
Your bank is offering you an account that will pay 20% interest in total for a twoyear
deposit. Determine the equivalent discount rate for a period length of:
a)
Six months.
b)
One month.
Question5
Your bank account pays interest with an EAR of 5%. What is the APR quote for this
account based on semiannual compounding?
Using the formula for converting from an
EAR to an APR quote
Question6
Capital One is advertising a 60month, 5.99% APR compounded monthly motorcycle
loan. If you need to borrow $8,000 to purchase your dream Harley Davidson, what will
your monthly payment be?
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Question7
You have credit card debt of $25.000 that has an APR (monthly compounding) of 15%.
Each month you pay minimum monthly payment only. You are required to pay only the
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 Winter '08
 trainor
 Interest Rates, bank account

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