(1) (a)suppose a firm has a policy of depositing a uniform amount (3500) of its
ID: 1228747 • Letter: #
Question
(1) (a)suppose a firm has a policy of depositing a uniform amount (3500) of its excess funds in a bank account at the end of every quarter, determine the worth of these deposits over a period of 10 years at an interest rate of 9% compounded:
(i) Semi-annually
(ii) Quarterly
(iii) Monthly
(b) A firm is considering the purchase of a machine with a price tag of $ 18,500. The firm is able to make a down payment of 3,500 and the balance is to be financed with a bank credit at an interest rate of 9.25% compounded daily. If the loan is to be repaid in 48 monthly equal installments. Compute the monthly payment.
(2) (a) An investor deposits $ 8,000 in a savings account that earns 8% simple interest in a year. How any years will it take to double the balance in the account? If, instead, the investor has the alternative to place the deposit in an account that earns 7% interest compounded annually, how many years will it take to double the deposited fund? (b) What factors determine nominal interest rate and real interest rate? Examine, using appropriate graphical illustration, how each of the following effects either nominal or real interest rate:
(i) An increase in money supply by the FED.
(2) A weak demand for investment goods
(3) An upsurge in the desire to save more in the economy
(4) An increase in the use of cash following a wave of credit card fraud.
Explanation / Answer
1 a) 3500 is deposited at end of every quarter. period is 10 yrs compunded interest = 9% 1) semi annually: half year principal: 7000 next half year, principal is 7000(1+r) there are 20 half years hence, the total amount at end of 10 yrs is: 7000(1+0.09)^20 2) quarterly: principal is 3500 there are 40 quarterlies hence, the total amount at end of 10 yrs is: 3500(1+0.09)^40 3) monthly: after 4 months, principal is: 3500 after 8 months, the sum is: 3500(1+0.09)^4 + 3500 after 12 months sum is: [3500(1+0.09)^4 + 3500][(1+0.09)^4] after 16 months, sum is: [3500(1+0.09)^4 + 3500][(1+0.09)^4][(1+0.09)^4] + 3500 after 120 months, sum is: 3500[ 1+(1+0.09)+.......+ (1+0.09)^49 ] = 3500 [ 1(1+0.09)^50 - 1 ]/(0.09) = 350000[ 1(1+0.09)^50 - 1 ]/9. 2 a) I = PTR/100 I+P = final sum given, final sum = 2(principal) => I=P => TR = 100 R = 8 => T = 100/8 = 25/2 = 12.5yrs. compunded: sum = P(1+r)^n given, P(1+r)^n = 2P => (1+0.07)^n = 2 => n = log(2)/log(1.7) = 1.3 yrs. b) price level and inflation rate. 1) inc in money supply: => increases. 2) less demand: => decreases 3) save more => decreases 4) credit card: increases pl rate lifesaver
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.