Chapter 2, Section 2
1.
Question 1 in the Book
2.
Question 2 in the Book
3.
Question 3 in the Book
4.
Question 4 in the Book
5.
Melvin invests 1000 in a bank account earning a constant annual effective interest
rate. Using the Rule of 72, Melvin estimates that he will have 2000 in 10 years.
How much will Melvin actually have in 10 years?
6.
Jennifer invests 1000 in a fund earning an annual effective interest rate of 10%. She
wants to know when she will have 4000. Her banker estimates the time using the
Rule of 72 as X years. Jennifer calculates it exactly as Y years. X and Y are not
necessarily integers.
Calculate Y  X.
Chapter 2, Section 3
7.
Question 1 in the Book
8.
Question 2 in the Book
9.
Question 3 in the Book
Hint:
Find Estaban
’
s effective interest rate for T years
using the cash flow and IRR functionality of your calculator.
Then T can be
found by (1 + IRR) = (1.06)
T
.
Make sure you understand why this is true.
10.
Question 4 in the Book.
Hint:
Find the quarterly effective interest rate and then
use our relationship formula to find the annual effective rate of interest.
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 Fall '08
 Staff
 Math, Effective Interest Rate, Internal rate of return, Mortgage loan

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