4:00 PM bb.courses.maine.edu iPad QUESTION 8 lf 1 3/4% each month is charged on

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4:00 PM bb.courses.maine.edu iPad QUESTION 8 lf 1 3/4% each month is charged on an unpaid balance of an account, what is the effective annual interest being charged? Express your answer to the hundredth of a percentage. QUESTION 9 A bank pays 4% nominal annual interest on special three-year certificates. What is the effective annual interest rate if interest is compounded every three months? Express your answer to a hundredth of a percentage. QUESTION 10 If you invest $1500 at an annual interest rate of 12% compounded continuously, how much will you have in the account after 25 years, rounded to the nearest whole dollar? Click Save and Submit to save and submit. Click Save All Answers to save all answers Save All Answers Close Windo

Explanation / Answer

Question 8: Answer is 23.14% or 0.2314

Interest charged every month on the unpaid balance is 1 3/4% or 1.75%

Future value of $1 charged with interest for 1 year compounded monthly will be (1.0175)^12 or 1.2314

Interest charged is 1.2314 - 1 = 0.2314 or 23.14%

Question 9: Answer is 4.23% or 0.0423

Working:

Future value 'FV' of a sum 'P' invested at a rate of 'r%' compounded quarterly for n years is

FV = P x (1+r/4)^nx4

For our question r = 4% and n= 3years

FV = P x (1.01)^3x4 = P x 1.01^12 = 1.126825 P

Interest = 1.126825 P - P = 0.126825 P

Effective interest for one year = (0.126825xP)/3 = 0.042275 x P

Effective interest rate = 0.042275 or 4.23%

Question 10. - Answer is $9,074

Working:

Formula for Future Value of a sum 'P' invested at an interest rate 'r' compounded continuously is

FV = P X e^rt , where e= 2.71828

For our question FV = 1,500 x 2.71828^0.12x25 = 1,500 x 2.71828^1.80 = 1,500 x 6.04964 = 9,074.46

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