1. Assume that you are paying $1,000 to buy an asset that will pay $100 at the end of year one, $300 at the end of each of the following three years, and $500 at the end of the fifth year. Compute the rate of return on the investment.
2. Compute the effective rate on a bank loan that has a nominal rate of 10%, compounded semiannually.
3. Suppose an investment offers a return of 10 percent, compounded monthly. Calculate the periodic rate and the effective rate.
4. Suppose you invest $100 in an account that pays a nominal rate of 5%, compounded semiannually. How much will you have accumulated after 10 years?
5. Suppose you put $100 into a bank which states that it will pays a 10 percent annual interest rate, but interest is credited every six months. How much would you have accumulated at the end of three years?
6. You deposited $1,000 in a savings account that pays 8 percent interest, compounded quarterly, planning to use it to finish your last year in college. Eighteen months later, you decide to go to the Rocky Mountains to become a ski instructor rather than continue in school, so you close out your account. How much money will you receive?
7. An investment pays you $5,000 at the end of each of the next five years Your plan is to invest the money in an account that pays 8 percent interest, compounded monthly. How much will you have in the account after receiving the final $5,000 payment in 5 years (60 months)?
8. A firm borrows $1,000, and the loan is to be repaid in three equal payments at the end of each of the next three years. The lender charges a 10% interest rate on the loan balance that is outstanding at the beginning of each year. Please calculate the payment and amortization schedule.
9. Suppose a company borrows $100,000, with the loan to be repaid in 5 equal payments at the end of each of the next 5 years. 5et up the amortization schedule if the interest rate on the loan is 6%.
10. You borrow $55,000 from a bank at an annual interest rate of 11%. The loan is to be repaid in 6 equal annual installments. What is the amount of the annual payment? What portion of the 3rd payment is interest?
11. Karen and Keith were just informed by their realtor that the $375,000 offer has been accepted by the seller. They will make a 20% down payment and borrow the rest from their local credit union. The 20-year fixed rate is 4.8% and the 30-year fixed rate is 6%. What is the monthly payment on each mortgage) What is the total amount of interest paid in each scenario?
12. You are considering buying a new car. The dealer is offering $1,000 cash back or 2.4% APR on a 5-year loan. The price of the car is $10,000. Your bank is offering 6.0% APR on 5-year car loans. Which is the better option?