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For all questions in this quiz, "1 year" = 12 months = 52 weeks = 365 days 1.
For all questions in this quiz, "1 year" = 12 months = 52 weeks = 365 days
1. What is the purchase price of a 26-week "T-bill" (US Treasury note) with a maturity value of $800 that earns a simple annual interest rate of 2.0 % ? Round answer to the nearest cent.
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2. If you paid $225 to a payday loan company for the use of $2500 for 3 months, what simple annual rate of interest is the company charging? Give answer as a percentage; round answer to nearest one-hundredth of a percent
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3. If a bank pays 2.5% interest compounded monthly on its certificates of deposit (CDs), what is the effective interest rate? Give answer as a percentage; round answer to nearest one-hundredth of a percent
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4. Nathan's savings account has a current balance of $3500. After 4 full years, what will the amount of interest be on this account if interest is 3.3% compounded monthly? Round answer to nearest cent.
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5. You have $30,000 to invest in a retirement savings account. Swindler Securities offers a retirement account with 4.57% interest compounded monthly, while Dimbulb Investments offers a retirement account with 4.6% interest compounded semi-annually. If you're thinking of investing this money for 6 years, which would be the better option in terms of (higher) return? Why?
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6. Parents have set up a sinking fund in order to have $150,000 in 18 years for their new baby's eventual college education. How much money should be paid quarterly into an account that pays 4.8% compounded quarterly? Round answer to the nearest cent.
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7. At age 40, Sheila makes her first monthly deposit of $400 into an employee retirement savings plan account earning 4.2% interest compounded monthly. She continues to make a monthly deposit of $400 until her 65th birthday (300 deposits in all). How much money is in Sheila's saving plan account at the end of the 25 years? Round answer to the nearest cent.
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8. What is the present value of an ordinary annuity that pays $2000 quarterly for 6 years at 5.2% compounded quarterly? Round answer to the nearest cent.
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9. A factory needs a $40,000 piece of machinery that has a useful life of 5 years. Knowing that the machine will have to be replaced every 5 years, the firm has the option of leasing a machine for $10,000 per year, or borrowing $40,000 to buy the machine. The nth National Bank can provide a $40,000 loan at 7.8% compounded annually over 5 years. Over the 5-year life of the machine: is it cheaper to lease, or to borrow the money and buy the machine?
(Hint: How much would the company end up paying if the money for the machine is borrowed?)
Show all work to support your choice: a simple "one or the other" answer, even if it's correct, will result in zero credit!
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10. A family purchases a $400,000 home by paying 20% up front and taking out a 30-year fixed-rate mortgage at 3.6% compounded monthly to finance the balance of the purchase price. Determine:
a. the monthly payment
b. the unpaid balance after 15 years
c. the total amount of interest paid to the lending institution over the course of the 30-year loan once the final payment is made
Round all answers to nearest cent. Show work!! Answers given without work shown will get zero credit.
Answers: a. _________________________________
b. _________________________________
c. _________________________________
