1. What simple interest rate per year would be req uired to accumulate the same
ID: 1166728 • Letter: 1
Question
1. What simple interest rate per year would be req uired to accumulate the same amount of money in 2 years as 10% per year compound interest? (10 points) (a) 10.5% (b) 11% (c) 20% (d) 22% (e) 23% 2, Mary purchases a bond having a face value of $1,000 for $950. The bond rate is 8% payable semi-annually. The bond has a remaining life of 5 years. Assume the bond will be redeemed for face value. The yield rate earned on the investment is nearest to? (a) Less than 4% (b) equal to 4% (c) more than 4% and less than 8% (d) equal to 8% (e) greater than 8% (10 points)Explanation / Answer
Q. 1, Answer is (a)- 10.5%
If we invest Rs. 10000 in bank, The amount we realise in two years in
compound Interest (CI) @ 10% for 2 years is Also 12100
CI = P*I*N i.e 10000*0.105*1=11000 for first year
2nd year : P2 (p1+I)*I*N =11000*0.105*1 = 12100.
And in simple interest rate = P*I*N
P- Principle amount, I- inrest rate, N- period
hence SI= 10000*0.105*2 is equal to 12100 it is 10.5%.
Q. 2, Answer (c)
he purchaged bond @ 950/- bearing face value of 1000/-
He redeems at face value i.e 1000.
The calculation at semiannual rate of interest is 4% (8/2)
4%= 950*0.04 =38/- =950+38= 988/-
5%=950*0.05 = 47.5 =950+ 47.5 =997.5/-
6%=950* 0.06= 57/- =950+57= 1007/-
hence if it is @4% semiannual rate of interst is 988. He redeemed the bond at face value i.e., $ 1000 means it is more than 4% and less than 8%.
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