FIN 3100 Study Guide - Midterm Guide: Annual Percentage Rate, Real Interest Rate, Nominal Interest Rate

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peachbuffalo68

26 Aug 2016

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Compounding periods on tvm equations: mortgage payments, abc printing company has just signed on the dotted line to buy a building worth. Abc paid ,000 down and must finance the remaining ,000. The bank will loan the money at 8% apr, but abc has the option to make annual or monthly payments. What are the annuity payments for each plan: monthly: . 15 = ,729. 80, annually: ,877. 21, computing for payment when future value = 0 and present value represents the principal of the loan. N = 12 (months) times 30 (years) and i/y represents 8% Apr/ 12 (months): the interest rate r used in the tm equations from chapters 3 and 4 is the period interest rate. R and n must agree in terms of periods in the equation: monthly v. annual savings for retirement, how much does denise need to save each period to become a millionaire by age.

Related Questions

Which of following statement is false?

When comparing investment it is best not to rely solely on quoted rates.

Compounding typically leads to differences between quoted and effective rates.

The APR on la loan with monthly payments is less than the annual interest you actually pay.

The Apr is the interest rate per period multiplied by the number of periods per year.

With monthly compounding, the APR will be larger than the effective annual rate.

blushkangaroo765

I. Fill in the blank using a number of terms listed below (@1 point). Annuity due, Asset Mgmt ratio, Call, Comparisons, Comparative ratio analysis, Corporation, Covered, Current Ratio, DSO, Du Pont Equation , Equal, Future performance, Greater, Higher, In-the-money, Less, Liquidity, Lower, Option, Ordinary Annuity, Out-of-the-money, Percentage, Perpetuity, Put, PV, Quick, Reduced, TIE, TATO, Trend Analysis, Writer 11. The payment or receipt of equal amounts, at the end of a series of equal periods, for a specified amount of time is called a(n) _______________. 12. When a loan is amortized over a five year term, the amount of interest paid is ________________ each year. 13. You have just won a $5 million lottery to be received in twenty annual equal payments of $250,000. What will happen to the present value of your winnings if the interest rate increases? It will be worth _________________. 14. The more frequent the compounding the _________________ the effective interest rate. 15. More frequent compounding results in _______________ future values and _______________ present values than less frequent compounding at the same nominal interest rate. 16. A(n) _______________ is a financial instrument that agrees to pay an equal amount of money per period into the indefinite future (i.e. forever). 17. A(n) _________________ is a contract which gives its holder the right to buy(or sell) an asset at some predetermined price within a specified period of time. 18. The seller of an option is called the option __________________. 19. An investor who writes call options against stock held in his or her portfolio is said to be selling _______________ options. 20. When the exercise price exceeds the current stock price, a call option is said to be _____________________; however, when the exercise price is less than the current price of the underlying stock, a call option is _________________. 21. An option which gives you the right to sell a stock at a specified price within some future period is called a(n) ______________ option.

Q1. Suppose you deposit fund in a bank saving account each month as follows:

- For the first twenty months, the deposits are $1,000 per month deposited at the end of each month. - The first deposit takes place at the end of the first month. - For the 21st till the 40th month, the deposited amounts increase by $10 from previous month deposit. Still, deposits are made at the end of each month. -For example, the deposit in the 21st month is $1,000+$10 = $1,010. - For the 41st till the 60th month, the deposits increase by 2% each month as compared to the previous year. Still, deposits are made at the end of each month. -For example, the deposit at the end of the 41st month is: (1,000+10*20) * (1+0.02) = $1,224. -Subsequently, the deposit at the end of the 42nd month is: (1,000+10*20) * (1+0.02)2 = $1248.48. The saving account is expected to have an interest at a rate of 0.35% per month. Assume that you donât withdraw the interest earned at the end of each interest period (year), but instead let it accumulate.

a] How much will you have at the end of the 60th month? Please note that compounding is monthly as stated earlier. b] Now suppose that all payments made by you remain the same but another bank is offering the following information to attract your business: - Compounding is daily - Nominal annual interest rate is 4.1% Calculate how much you are expected to have at the end of the 60th month given this new information. Note: In this question, you are expected to use compounding factors for uniform, arithmetic, and geometric series. Please show clearly your calculations steps.

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FIN 3100 Study Guide - Midterm Guide: Annual Percentage Rate, Real Interest Rate, Nominal Interest Rate

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