Question

1. If $600 is invested at 8% for three years compounded monthly, what interest is earned?

2..If you borrow $7500 for six months at 4% simple interest, how much money must you repay at the end of six months?

3..a.         Find the future value of $4500 invested at 3.5% compounded continuously for five years.

b.         Find the compound interest.

4. Suppose you invest $350 each month in an ordinary annuity which pays 6.2% compounded monthly. What is the future value of this annuity after ten years?

5. How much must be put aside each month if in 15 years you want to have $32,000 and if money is worth 3.75% compounded monthly?

6. a. Carl buys a $365,000 condominium with no down payment and payments due at the end of the month for 30 years. If the interest rate is 4.5%, compounded monthly, what will be the size of the monthly payment?

b.         How much of the first payment went to interest?

7.         Explain what effective annual rate or annual percentage yield means.

8.         A young couple wants to save $75,000 over the next 18 years so their child can attend MCCC. To reach this goal, how much money will they have to deposit at the end of each quarter into an account that earns interest at an annual rate of 6.3%?

Use Excel to find the answer

Answer 1

As per policy only first four questions will be answered

Answer 1

To find amount of interest, first we need to future value using FV function of Excel

Its parameters are as follows

Nper = 3*12 =36 (because compounded monthly)

Rate = 8%/12

Pv = - 600

Pmt = 0

Now apply formula

=FV((8%/12),36,0,-600)

Now press enter you will get answer as 762.14

Now calculate interest

Interest = fv - Pv = 762.14-600 =162.14

Answer 2

According to simple interest,

I = PRN/100 =( 7500*4*6) /(12*100) =150

Amount = P + I = 7500+150 =7650

Answer 3 (a)

FV is calculated using the FV Function of Excel

Its parameters are as follows

Nper = 5*365 = 1825 (because compounded continuously)

Pmt = 0

Pv =-4500

Rate = 3.5%/365

Now apply formula

=FV((3.5%/365),1825,0,-4500)

Now press enter you will get answer as 5360.56

Answer 3 (b)

Interest = FV - Pv = 5360.56-4500 = 860.56

Answer 4

To Future value, FV function of Excel is used

Its parameters are as follows

Nper = 10*12 =120

Rate = 6.2%/12

Pv =0

Pmt = - 350

Now apply formula

=FV((6.2%/12),120,-350,0)

Now press enter you will get answer as 57984.61