All Related Questions of Compounding

Q: Refer to the data in BE6-7. Assuming quarterly compounding

Refer to the data in BE6-7. Assuming quarterly compounding of amounts invested at 12%, how much of John Fillmore’s inheritance must be invested to have enough at retirement to buy the boat? In BE6-7 J...

Q: LEW Company purchased a machine at a price of $100,

LEW Company purchased a machine at a price of $100,000 by signing a note payable, which requires a single payment of $123,210 in 2 years. Assuming annual compounding of interest, what rate of interest...

Q: What is the future value in six years of $1,

What is the future value in six years of $1,000 invested in an account with a stated annual interest rate of 9 percent, a. Compounded annually? b. Compounded semiannually? c. Compounded monthly? d. Co...

Q: A useful rule of thumb for the time it takes an investment

A useful rule of thumb for the time it takes an investment to double with discrete compounding is the “Rule of 72.” To use the Rule of 72, you simply divide 72 by the interest rate to determine the nu...

Q: How long will it take $200 to double if it earns

How long will it take $200 to double if it earns the following rates? Compounding occurs once a year. a. 7% b. 10% c. 18% d. 100%

Q: Find the future values of these ordinary annuities. Compounding occurs once

Find the future values of these ordinary annuities. Compounding occurs once a year. a. $400 per year for 10 years at 10% b. $200 per year for 5 years at 5% c. $400 per year for 5 years at 0% d. Rework...

Q: Bank A pays 4% interest compounded annually on deposits, while

Bank A pays 4% interest compounded annually on deposits, while Bank B pays 3.5% compounded daily. a. Based on the EAR (or EFF%), which bank should you use? b. Could your choice of banks be influenced...

Q: Your firm sells for cash only; but it is thinking of

Your firm sells for cash only; but it is thinking of offering credit, allowing customers 90 days to pay. Customers understand the time value of money, so they would all wait and pay on the 90th day. T...

Q: Your firm is considering a project that will cost $4.

Your firm is considering a project that will cost $4.55 million upfront, generate cash flows of $3.5 million per year for three years, and then have a cleanup and shutdown cost of $6 million in the fo...

Q: How does continuous compounding benefit an investor?

How does continuous compounding benefit an investor?

Q: No More Pencils, Inc., disburses checks every two weeks that

No More Pencils, Inc., disburses checks every two weeks that average $58,000 and take seven days to clear. How much interest can the company earn annually if it delays transfer of funds from an intere...

Q: At the beginning of her current tax year, Angela purchased a

At the beginning of her current tax year, Angela purchased a zero-coupon corporate bond at original issue for $30,000 with a yield to maturity of 6 percent. Given that she will not actually receive...

Q: You are chairperson of the investment fund for the Continental Soccer League

You are chairperson of the investment fund for the Continental Soccer League. You are asked to set up a fund of semiannual payments to be compounded semiannually to accumulate a sum of $200,000 after...

Q: Adjust the annual formula for a future value of a single amount

Adjust the annual formula for a future value of a single amount at 12 percent for 10 years to a semiannual compounding formula. What are the interest factors (FVIF) before and after? Why are they diff...

Q: If you start making $50 monthly contributions today and continue them

If you start making $50 monthly contributions today and continue them for five years, what’s their future value if the compounding rate is 10 percent APR? What is the present value of this annuity?

Q: If you start making $75 monthly contributions today and continue them

If you start making $75 monthly contributions today and continue them for four years, what is their future value if the compounding rate is 12 percent APR? What is the present value of this annuity?

Q: The following information is taken from the 2012 annual report of Bugant

The following information is taken from the 2012 annual report of Bugant, Inc. Bugant’s fiscal year ends December 31 of each year. Bugant’s December 31, 2012, balance sheet is as follows. Bugant, Inc....

Q: The following information is taken from the 2012 annual report of Bugant

The following information is taken from the 2012 annual report of Bugant, Inc. Bugant’s fiscal year ends December 31 of each year. Bugant’s December 31, 2012, balance sheet is as follows. Bugant, Inc....

Q: Mike Lynch is the manager of an upstate New York regional office

Mike Lynch is the manager of an upstate New York regional office for an insurance company. As the regional manager, his compensation package comprises a base salary, commissions, and a bonus when the...

Q: While you were visiting London, you purchased a Jaguar for £

While you were visiting London, you purchased a Jaguar for £35,000, payablein three months. You have enough cash at your bank in New York City, whichpays 0.35 percent interest per month, compounding m...

Q: Gordon paid the $10,000 balance of his Federal income

Gordon paid the $10,000 balance of his Federal income tax three months late. Ignore daily compounding of interest. Determine the interest rate that applies relative to this amount, assuming that: a. G...

Q: Here are two useful rules of thumb. The “Rule

Here are two useful rules of thumb. The “Rule of 72” says that with discrete compounding the time it takes for an investment to double in value is roughly 72/interest rate (in percent). The “Rule of...

Q: Lakesha recently found out that her credit card balance was compounded daily

Lakesha recently found out that her credit card balance was compounded daily rather than monthly. How will this compounding frequency impact the outstanding debt she owes on her credit card?

Q: SofTech, Inc., a developer and distributor of business applications software

SofTech, Inc., a developer and distributor of business applications software, has been in business for five years. SofTech’s sales have increased steadily to the current level of $25 million per year....

Q: Mike Lynch is the manager of an upstate New York regional office

Mike Lynch is the manager of an upstate New York regional office for an insurance company. As the regional manager, his compensation package comprises a base salary, commissions, and a bonus when the...

Q: What is the difference between compounding (the determination of future value

What is the difference between compounding (the determination of future value) and discounting (the determination of present value)?

Q: Refer to the preceding problem. a. Will Carl owe

Refer to the preceding problem. a. Will Carl owe interest? If so, on what amount and for how many days? Assume that any interest period begins on April 16 of a non–leap year. b. Assume the applicabl...

Q: Barcain Credit Corp. wants to earn an effective annual return on

Barcain Credit Corp. wants to earn an effective annual return on its consumer loans of 16 percent per year. The bank uses daily compounding on its loans. What interest rate is the bank required by law...

Q: Suppose the spot exchange rate for Narnian currency is trading for $

Suppose the spot exchange rate for Narnian currency is trading for $2/N and one year later it can go up to $2.5/N, an increase of 25 percent, or down to $1.80/N, a decrease of 10 percent. Assume a cal...

Q: Kross Company purchased a machine at a price of $100,

Kross Company purchased a machine at a price of $100,000 by signing a note payable, which requires a single payment of $118,810 in 2 years. Assuming annual compounding of interest, what rate of intere...

Q: What is meant by the term time value of money? Why

What is meant by the term time value of money? Why is a present value always less than the future value to which it relates? Appendix 1: The time value of money can be discussed in relation to either...

Q: The HIV/AIDS crisis has been called the worst pandemic since

The HIV/AIDS crisis has been called the worst pandemic since the fourteenth century’s Black Plague. The first incident of HIV/AIDS was discovered by the U.S. Centers for Disease Control in 1981. Over...

Q: The U.S. Bureau of the Census publishes employment statistics

The U.S. Bureau of the Census publishes employment statistics and demand forecasts for various occupations. a. Using a spreadsheet or hand-held calculator, calculate the ten-year growth rate forecast...

Q: It is March 10, 2017. The cheapest-to-

It is March 10, 2017. The cheapest-to-deliver bond in a December 2017 Treasury bond futures contract is an 8% coupon bond, and delivery is expected to be made on December 31, 2017. Coupon payments on...

Q: Assume that a bank can borrow or lend money at the same

Assume that a bank can borrow or lend money at the same interest rate in the LIBOR market. The 90-day rate is 10% per annum, and the 180-day rate is 10.2% per annum, both expressed with continuous com...

Q: A stock price is currently $50. It is known that

A stock price is currently $50. It is known that at the end of 6 months it will be either $60 or $42. The risk-free rate of interest with continuous compounding is 12% per annum. Calculate the value o...

Q: A bank quotes an interest rate of 7% per annum with

A bank quotes an interest rate of 7% per annum with quarterly compounding. What is the equivalent rate with (a) continuous compounding and (b) annual compounding?

Q: Suppose that risk-free zero interest rates with continuous compounding are

Suppose that risk-free zero interest rates with continuous compounding are as follows: Calculate forward interest rates for the second, third, fourth, and fifth years.

Q: Suppose that risk-free zero interest rates with continuous compounding are

Suppose that risk-free zero interest rates with continuous compounding are as follows: Calculate forward interest rates for the second, third, fourth, fifth, and sixth quarters.

Q: What rate of interest with continuous compounding is equivalent to 8%

What rate of interest with continuous compounding is equivalent to 8% per annum with monthly compounding?

Q: The 350-day LIBOR rate is 3% with continuous compounding

The 350-day LIBOR rate is 3% with continuous compounding and the forward rate calculated from a Eurodollar futures contract that matures in 350 days is 3.2% with continuous compounding. Estimate the 4...

Q: Assume that the risk-free interest rate is 4% per

Assume that the risk-free interest rate is 4% per annum with continuous compounding and that the dividend yield on a stock index varies throughout the year. In February, May, August, and November, div...

Q: Suppose that the risk-free interest rate is 6% per

Suppose that the risk-free interest rate is 6% per annum with continuous compounding and that the dividend yield on a stock index is 4% per annum. The index is standing at 400, and the futures price f...

Q: It is July 30, 2018. The cheapest-to-

It is July 30, 2018. The cheapest-to-deliver bond in a September 2018 Treasury bond futures contract is a 13% coupon bond, and delivery is expected to be made on September 30, 2018. Coupon payments on...

Q: A stock is expected to pay a dividend of $1 per

A stock is expected to pay a dividend of $1 per share in 2 months and in 5 months. The stock price is $50, and the risk-free rate of interest is 8% per annum with continuous compounding for all maturi...

Q: A stock price is currently $40. It is known that

A stock price is currently $40. It is known that at the end of 3 months it will be either $45 or $35. The risk-free rate of interest with quarterly compounding is 8% per annum. Calculate the value of...

Q: Suppose that 3-month, 6-month, 12-

Suppose that 3-month, 6-month, 12-month, 2-year, and 3-year OIS rates are 2.0%, 2.5%, 3.2%, 4.5%, and 5%, respectively. The 3-month, 6-month, and 12-month OISs involve a single exchange at maturity; t...

Q: Suppose that x is the yield to maturity with continuous compounding on

Suppose that x is the yield to maturity with continuous compounding on a zero-coupon bond that pays off $1 at time T. Assume that x follows the process
where a,
, and s are positive constants and d...

Q: What is the future value in six years of $1,

What is the future value in six years of $1,000 invested in an account with an APR of 7.5 percent, a. Compounded annually? b. Compounded semiannually? c. Compounded monthly? d. Compounded continuously...

Q: You find a zero coupon bond with a par value of $

You find a zero coupon bond with a par value of $10,000 and 17 years to maturity. If the yield to maturity on this bond is 4.9 percent, what is the dollar price of the bond? Assume semiannual compound...

Q: A useful rule of thumb for the time it takes an investment

A useful rule of thumb for the time it takes an investment to double with discrete compounding is the “Rule of 72.” To use the Rule of 72, you simply divide 72 by the interest rate to determine the nu...

Q: Drug compounding is a process by which a pharmacist or doctor combines

Drug compounding is a process by which a pharmacist or doctor combines, mixes, or alters ingredients to create a medication tailored to the needs of an individual patient. Compounding is typically use...

Q: No More Pencils, Inc., disburses checks every two weeks that

No More Pencils, Inc., disburses checks every two weeks that average $61,700 and take seven days to clear. How much interest can the company earn annually if it delays transfer of funds from an intere...

Q: James Olds buys a four-year, $1,000

James Olds buys a four-year, $1,000,000 certificate of deposit from the Second National Bank. James will receive 5% interest in year 1; 5.5% in year 2; 6% in year three; and 6.5% interest in year 4....

Q: The processes of discounting and compounding are related. Explain this relationship

The processes of discounting and compounding are related. Explain this relationship.

Q: Compute the cost of the trade credit terms in Problem 15-

Compute the cost of the trade credit terms in Problem 15-3 using the compounding formula, or effective annual rate. Data from Problem 15-3: Historical data for the sales, accounts receivable, invento...

Q: In 2016 Bill Gates was worth about $82 billion. Let’s

In 2016 Bill Gates was worth about $82 billion. Let’s see what Bill Gates can do with his money in the following problems. a. I’ll take Manhattan? Manhattan’s native tribe sold Manhattan Island to Pet...

Q: Bradford Construction Supply Company is suffering from a prolonged decline in new

Bradford Construction Supply Company is suffering from a prolonged decline in new construction in its sales area. In an attempt to improve its cash position, the firm is considering changes in its acc...

Q: How can we accommodate the effects of compounding in our calculation of

How can we accommodate the effects of compounding in our calculation of the effective cost of short-term credit?

Q: The payoff from a derivative will occur in 8 years. It

The payoff from a derivative will occur in 8 years. It will equal the average of the 1-year risk-free interest rates observed at times 5, 6, 7, and 8 years applied to a principal of $1,000. The risk-f...

Q: Suppose that the LIBOR/swap curve is flat at 6%

Suppose that the LIBOR/swap curve is flat at 6% with continuous compounding and a 5-year bond with a coupon of 5% (paid semiannually) sells for 90.00. How would an asset swap on the bond be structured...

Q: A company has issued 3- and 5-year bonds with

A company has issued 3- and 5-year bonds with a coupon of 4% per annum payable annually. The yields on the bonds (expressed with continuous compounding) are 4.5% and 4.75%, respectively. Risk-free rat...

Q: What is the credit default swap spread in Problem 25.8

What is the credit default swap spread in Problem 25.8 if it is a binary CDS? Data from Problem 25.8: Suppose that the risk-free zero curve is flat at 7% per annum with continuous compounding and th...

Q: Suppose that the risk-free zero curve is flat at 7

Suppose that the risk-free zero curve is flat at 7% per annum with continuous compounding and that defaults can occur halfway through each year in a new 5-year credit default swap. Suppose that the re...

Q: Calculate the price of a cap on the 90-day LIBOR

Calculate the price of a cap on the 90-day LIBOR rate in 9 months’ time when the principal amount is $1,000. Use Black’s model with LIBOR discounting and the following information: (a) The quoted 9-mo...

Q: Suppose that the risk-free zero curve is flat at 6

Suppose that the risk-free zero curve is flat at 6% per annum with continuous compounding and that defaults can occur at times 0.25 years, 0.75 years, 1.25 years, and 1.75 years in a 2-year plain vani...

Q: The LIBOR/swap curve is flat at 3% with continuous

The LIBOR/swap curve is flat at 3% with continuous compounding and a 4-year bond with a coupon of 4% per annum (paid semiannually) sells for 101. How would an asset swap on the bond be structured? Wha...

Q: What is the value of a 2-year fixed-for

What is the value of a 2-year fixed-for-floating compounding swap where the principal is $100 million and payments are made semiannually? Fixed interest is received and floating is paid. The fixed rat...

Q: What is the value of a 5-year swap where LIBOR

What is the value of a 5-year swap where LIBOR is paid in the usual way and in return LIBOR compounded at LIBOR is received on the other side? The principal on both sides is $100 million. Payment date...

Q: Explain why a plain vanilla interest rate swap and the compounding swap

Explain why a plain vanilla interest rate swap and the compounding swap in Section 34.2 can be valued using the ‘‘assume forward rates are realized’’ rule, but a LIBOR-in-arrears swap in Section 34.4...

Q: A company can buy an option for the delivery of 1 million

A company can buy an option for the delivery of 1 million units of a commodity in 3 years at $25 per unit. The 3-year futures price is $24. The risk-free interest rate is 5% per annum with continuous...

Q: What is the value of the swap in Problem 25.8

What is the value of the swap in Problem 25.8 per dollar of notional principal to the protection buyer if the credit default swap spread is 150 basis points? 25.8. Suppose that the risk-free zero curv...

Q: A 3-year convertible bond with a face value of $

A 3-year convertible bond with a face value of $100 has been issued by company ABC. It pays a coupon of $5 at the end of each year. It can be converted into ABC’s equity at the end of the first year o...

Q: A swaption gives the holder the right to receive 7.6

A swaption gives the holder the right to receive 7.6% in a 5-year swap starting in 4 years. Payments are made annually. The forward swap rate is 8% with annual compounding and its volatility is 25% pe...

Q: What is the value of a European swap option that gives the

What is the value of a European swap option that gives the holder the right to enter into a 3-year annual-pay swap in 4 years where a fixed rate of 5% is paid and LIBOR is received? The swap principal...

Q: Carry out a manual calculation to verify the option prices in Example

Carry out a manual calculation to verify the option prices in Example 29.2.

Q: Calculate the future value in five years of $5,000

Calculate the future value in five years of $5,000 received today if your investments pay a. 6 percent compounded annually b. 8 percent compounded annually c. 10 percent compounded annually d. 10 perc...

Q: Compute the current yield of a 10%, 25-year bond

Compute the current yield of a 10%, 25-year bond that is currently priced in the market at $1,200. Use annual compounding to find the promised yield on this bond. Repeat the promised yield calculation...

Q: A 10%, 25-year bond has a par value of

A 10%, 25-year bond has a par value of $1,000 and a call price of $1,075. (The bond’s first call date is in five years.) Coupon payments are made semiannually (so use semiannual compounding where appr...

Q: Two bonds have par values of $1,000. One

Two bonds have par values of $1,000. One is a 5%, 15-year bond priced to yield 8%. The other is a 7.5%, 20-year bond priced to yield 6%. Which of these has the lower price? (Assume annual compounding...

Q: Using annual compounding, find the yield to maturity for each of

Using annual compounding, find the yield to maturity for each of the following bonds. a. A 9.5%, 20-year bond priced at $957.43 b. A 16%, 15-year bond priced at $1,684.76 c. A 5.5%, 18-year bond price...

Q: In the early twentieth century, there was an ambitious young man

In the early twentieth century, there was an ambitious young man named Arthur, who started working at a company in Chicago as a mailroom clerk. He was a hard worker and very smart, eventually ending u...

Q: The notes to the financial statements of Aggarwal Corporation for 2013 reveal

The notes to the financial statements of Aggarwal Corporation for 2013 reveal the following information with respect to long-term debt. All interest rates in this problem assume semiannual compounding...

Q: No More Pencils, Inc., disburses checks every two weeks that

No More Pencils, Inc., disburses checks every two weeks that average $93,000 and take seven days to clear. How much interest can the company earn annually if it delays transfer of funds from an intere...

Q: Refer to the data in BE6-7. Assuming quarterly compounding

Refer to the data in BE6-7. Assuming quarterly compounding of amounts invested at 8%, how much of John Fillmore’s inheritance must be invested to have enough at retirement to buy the boat? From BE 6-...

Q: The following information is taken from the 2017 annual report of Bugant

The following information is taken from the 2017 annual report of Bugant, Inc. Bugant’s fiscal year ends December 31 of each year. Bugant’s December 31, 2017, balan...

Q: Find the future value of a five-year $100,

Find the future value of a five-year $100,000 investment that pays 8.75 percent and that has the following compounding periods: a. Quarterly. b. Monthly. c. Daily. d. Continuous.

Q: Cyclone Rentals borrowed $15,550 from a bank for three

Cyclone Rentals borrowed $15,550 from a bank for three years. If the quoted rate (APR) is 6.75 percent, and the compounding is daily, what is the effective annual interest rate (EAR)?

Q: A credit card offers financing at an APR of 18 percent,

A credit card offers financing at an APR of 18 percent, with monthly compounding on outstanding charges. What is the effective annual rate (EAR)?

Q: How does changing the compounding period affect the amount of interest earned

How does changing the compounding period affect the amount of interest earned on an investment?

Q: What is the compounding period for most bonds sold in the United

What is the compounding period for most bonds sold in the United States?

Q: Explain the difference between compounding and discounting?

Explain the difference between compounding and discounting?

Q: Use Worksheet 7.2. Elizabeth Erlich wants to buy a

Use Worksheet 7.2. Elizabeth Erlich wants to buy a home entertainment center. Complete with a big-screen TV, DVD, and sound system, the unit would cost $4,500. Elizabeth has over $15,000 in a money fu...

Q: A 25-year, zero coupon bond was recently quoted at

A 25-year, zero coupon bond was recently quoted at 6.500. Find the current yield and yield to maturity of this issue, given the bond has a par value of $1,000. (Assume annual compounding for the yield...

Q: Every two weeks, No More Pencils, Inc., disburses checks that

Every two weeks, No More Pencils, Inc., disburses checks that average $107,000 and take seven days to clear. How much interest can the company earn annually if it delays transfer of funds from an inte...

Q: Imagination Dragons Corporation needs to raise funds to finance a

Imagination Dragons Corporation needs to raise funds to finance a plant expansion, and it has decided to issue 25-year zero coupon bonds with a par value of $1,000 each to raise the money. The require...

Q: You find a zero coupon bond with a par value

You find a zero coupon bond with a par value of $10,000 and 17 years to maturity. If the yield to maturity on this bond is 4.2 percent, what is the price of the bond? Assume semiannual compounding per...

Q: Elliott Credit Corp. wants to earn an effective annual return

Elliott Credit Corp. wants to earn an effective annual return on its consumer loans of 17.1 percent per year. The bank uses daily compounding on its loans. What interest rate is the bank required by l...

Q: Every two weeks, No More Pencils, Inc., disburses checks that

Every two weeks, No More Pencils, Inc., disburses checks that average $107,000 and take seven days to clear. How much interest can the company earn annually if it delays transfer of funds from an inte...

Q: Imagination Dragons Corporation needs to raise funds to finance a

Imagination Dragons Corporation needs to raise funds to finance a plant expansion, and it has decided to issue 25-year zero coupon bonds with a par value of $1,000 each to raise the money. The require...

Q: You find a zero coupon bond with a par value

You find a zero coupon bond with a par value of $10,000 and 17 years to maturity. If the yield to maturity on this bond is 4.2 percent, what is the price of the bond? Assume semiannual compounding per...

Q: Elliott Credit Corp. wants to earn an effective annual return

Elliott Credit Corp. wants to earn an effective annual return on its consumer loans of 17.1 percent per year. The bank uses daily compounding on its loans. What interest rate is the bank required by l...

Q: Richard e-mailed me that he and Monica differed about the

Richard e-mailed me that he and Monica differed about the impact of his extra spending over the past 15 years. He calculated it at about $3,000 a year. He said the total cost of $45,000 was well withi...

Q: You are chairperson of the investment fund for the Continental Soccer League

You are chairperson of the investment fund for the Continental Soccer League. You are asked to set up a fund of semiannual payments to be compounded semiannually to accumulate a sum of $250,000 after...

Q: How much must you deposit at the end of each quarter in

How much must you deposit at the end of each quarter in an account that pays a nominal interest rate of 20 percent, compounded quarterly, if at the end of five years you want $10,000 in the account? (...

Q: You have decided to start planning for your retirement by analyzing different

You have decided to start planning for your retirement by analyzing different retirement plans. The plan offered by IRA Managers requires you to deposit $5,000 at the beginning of each of the next 30...

Q: What effect does more frequent compounding have on present values?

What effect does more frequent compounding have on present values?

Q: Why should each of the following be familiar with compounding and present

Why should each of the following be familiar with compounding and present value concepts? a. A marketing manager b. A personnel manager

Q: Josephine needs to borrow $ 180,000 to purchase her new

Josephine needs to borrow $ 180,000 to purchase her new house in Yarmouth, Nova Scotia. She would like to pay off the mortgage in 20 years, making monthly payments. For the initial three‐year term, Pr...

Q: A 65‐year‐old man intends to use his retirement

A 65‐year‐old man intends to use his retirement funds to purchase an annuity from a life insurance company. Given the amount of money the man has available to invest, the insurance company is able to...

Q: Jimmie is buying a new car. His bank quotes a rate

Jimmie is buying a new car. His bank quotes a rate of 9.5 percent per year for a car loan. Calculate the effective annual rate if the compounding occurs: a. annually b. quarterly c. monthly

Q: How many years will it take for an investment to double in

How many years will it take for an investment to double in value if the rate of return is 9 percent and compounding occurs: a. annually? b. quarterly?

Q: Universal Bank pays 7% interest, compounded annually, on time

Universal Bank pays 7% interest, compounded annually, on time deposits. Regional Bank pays 6% interest, compounded quarterly. a. Based on effective interest rates, in which bank would you prefer to de...

Q: What is the relationship between the number of times interest is compounded

What is the relationship between the number of times interest is compounded per year on an investment and the future value of that investment? What is the relationship between the number of times comp...

Q: Calculate the amount of money that will be in each of the

Calculate the amount of money that will be in each of the following accounts at the end of the given deposit period:

Q: You just received a $5,000 bonus. a

You just received a $5,000 bonus. a. Calculate the future value of $5,000, given that it will be held in the bank for five years and earn an annual interest rate of 6 percent. b. Recalculate part a us...

Q: Your grandmother just gave you $6,000. You’d like

Your grandmother just gave you $6,000. You’d like to see how much it might grow if you invest it. a. Calculate the future value of $6,000, given that it will be invested for five years at an annual in...

Q: If you deposit $10,000 today into an account earning

If you deposit $10,000 today into an account earning an 11 percent annual rate of return, in the third year how much interest will you earn? How much of the total is simple interest, and how much resu...

Q: You are responsible for managing your company’s short-term investments and

You are responsible for managing your company’s short-term investments and you know that the compounding frequency of investment opportunities is quite important. Using the information provided at MyL...

Q: What effect does compounding interest more frequently than annually have on (

What effect does compounding interest more frequently than annually have on (a) future value and (b) the effective annual rate (EAR)? Why?

Q: How is the compounding process related to the payment of interest on

How is the compounding process related to the payment of interest on savings? What is the general equation for future value?

Q: How does the future value of a deposit subject to continuous compounding

How does the future value of a deposit subject to continuous compounding compare to the value obtained by annual compounding?

Q: Using annual, semiannual, and quarterly compounding periods for each of

Using annual, semiannual, and quarterly compounding periods for each of the following, (1) calculate the future value if $5,000 is deposited initially, and (2) determine the effective annual rate (EAR...

Q: For each of the cases in the table below: a

For each of the cases in the table below: a. Calculate the future value at the end of the specified deposit period. b. Determine the effective annual rate, EAR. c. Compare the nominal annual rate, r,...

Q: You plan to invest $2,000 in an individual retirement

You plan to invest $2,000 in an individual retirement account (IRA) today at a nominal annual rate of 8%, which is expected to apply to all future years. a. How much will you have in the account after...

Q: Janet Boyle intends to deposit $300 per year in a credit

Janet Boyle intends to deposit $300 per year in a credit union for the next 10 years, and the credit union pays an annual interest rate of 8%. a. Determine the future value that Janet will have in 10...

Q: The financial manager at Starbuck Industries is considering an investment that requires

The financial manager at Starbuck Industries is considering an investment that requires an initial outlay of $25,000 and is expected to produce cash inflows of $3,000 at the end of year 1, $6,000 at t...

Q: An elite private college receives large donations from successful alumni. The

An elite private college receives large donations from successful alumni. The account that holds these donations now has $955 million. a. How much would the account earn in 1 year of simple interest...

Q: Deanna is 62 years old. She plans to retire in 3

Deanna is 62 years old. She plans to retire in 3 years. She has $300,000 in a savings account that yields 2.25% interest compounded daily. She has calculated that her final working year’s salary will...

Q: Investigate the difference between compounding annually and simple interest for parts a

Investigate the difference between compounding annually and simple interest for parts a–j. Round to the nearest cent. a. Find the simple interest for a 1-year CD for $5,000 at a 2.5% interest rate....

Q: Use a financial calculator or computer software program to answer the following

Use a financial calculator or computer software program to answer the following questions. a. What would be the future value of $19,378 invested now if the money remains deposited for eight years, the...

Q: The following cash flow streams are expected to result from three investment

The following cash flow streams are expected to result from three investment opportunities. a. Find the present values at the end of time period zero for each of these three investments if the disco...

Q: 1. What is the term for an arithmetic process whereby a

1. What is the term for an arithmetic process whereby a future value decreases at a compound interest rate over time to reach a present value? a. Compounding b. Discounting c. Investing d. Specula...

Q: 1. If you wish to compound or discount quarterly (four

1. If you wish to compound or discount quarterly (four times a year), for a period of five years, what would be the number of periodic payments (or receipts)? a. Five b. Ten c. Fifteen d. Twenty...

Q: Describe compounding or discounting that is done more often than annually.

Describe compounding or discounting that is done more often than annually.

Q: Describe the process of compounding and the meaning of compound interest.

Describe the process of compounding and the meaning of compound interest.

Q: Ryan and Laurie Middleton just purchased their first home with a traditional

Ryan and Laurie Middleton just purchased their first home with a traditional (monthly compounding and payments) 6% 30-year mortgage loan of $178,000. a. How much is their monthly payment? b. How much...

Q: Local banks are all offering 6% compounded monthly on five-

Local banks are all offering 6% compounded monthly on five-year Certificates of Deposit. Hanover Bank has offered continuous compounding at the same rate on new CDs hoping to attract additional custo...

Q: Describe the underlying meaning of compounding and compounding periods. How does

Describe the underlying meaning of compounding and compounding periods. How does it relate to time value? Include the idea of an effective annual rate (EAR). What is the annual percentage rate (APR)?...

Q: A $10,000 car loan has payments of $361

A $10,000 car loan has payments of $361.52 per month for three years. What is the interest rate? Assume monthly compounding and give the answer in terms of an annual rate.

Q: If an initial amount A0 of money is invested at an interest

If an initial amount A0 of money is invested at an interest rate r compounded times a year, the value of the investment after t years is If we let n→∞, we refer t...

Q: Following the lessons learned in the 2008/2009 mortgage crisis,

Following the lessons learned in the 2008/2009 mortgage crisis, one would think that issues of egregious lending practices would have gone away. Instead, they have taken a different twist in the conte...

Q: Verify that daily compounding is nearly the same as continuous compounding by

Verify that daily compounding is nearly the same as continuous compounding by graphing y = 100[1 + (.05/360)]360x, together with y = 100e0.05x in the window [0, 64] by [250, 2500]. The two graphs shou...

Q: The capitalized cost of an asset is the total of the original

The capitalized cost of an asset is the total of the original cost and the present value of all future “renewals” or replacements. This concept is useful, for example, when you are selecting equipment...

Q: The only time you change the original cash flow diagram in problems

The only time you change the original cash flow diagram in problems involving uniform series cash flows is when the: (a) payment period is longer than the compounding period (b) payment period is equ...

Q: Jennifer and Rex both receive a dividend from their 401(k

Jennifer and Rex both receive a dividend from their 401(k) retirement plan every 6 months. The earning rates for this year have been 5% per year, compounded quarterly for Jennifer, and 4.85% per year,...

Q: You plan to deposit $100 per week into a fund that

You plan to deposit $100 per week into a fund that pays interest of 6% per year, compounded quarterly. Identify the interest period, compounding period, and number of times interest is compounded per...

Q: Western Energy makes quarterly deposits into an account reserved for purchasing new

Western Energy makes quarterly deposits into an account reserved for purchasing new equipment 2 years from now. The interest paid on the deposits is 12% per year, compounded monthly. (a) Identify the...

Q: Solve Problem 4.19 by applying the EFFECT function to determine

Solve Problem 4.19 by applying the EFFECT function to determine the rates. Problem4.19 Jennifer and Rex both receive a dividend from their 401(k) retirement plan every 6 months. The earning rates for...

Q: An engineer deposited her annual bonus of $10,000 into

An engineer deposited her annual bonus of $10,000 into an account that pays interest at 8% per year, compounded semiannually. She withdrew $1000 in months 2, 11, and 23. Now, she wants to know the tot...

Q: Identify the compounding period for the following interest statements: (

Identify the compounding period for the following interest statements: (a) 1% per week; (b) 2.5 % per quarter; and (c) 8.5% per year, compounded semiannually.

Q: Identify the compounding period for the following interest statements: (

Identify the compounding period for the following interest statements: (a) nominal 7% per year, compounded monthly; (b) effective 6.8% per year, compounded monthly; and (c) effective 3.4% per quarter,...

Q: A credit card issued by the GECU credit union has an APR

A credit card issued by the GECU credit union has an APR of 16% and an APY of 16.64%. (a) What is the compounding period? (b) Use the EFFECT function to find the compounding period. Answer: 0.1664...

Q: Evergreen Credit Corp. wants to earn an effective annual return on

Evergreen Credit Corp. wants to earn an effective annual return on its consumer loans of 18.2 percent per year. The bank uses daily compounding on its loans. What interest rate is the bank required by...

Q: Imagination Dragons Corporation needs to raise funds to finance a plant expansion

Imagination Dragons Corporation needs to raise funds to finance a plant expansion, and it has decided to issue 25-year zero coupon bonds with a par value of $1,000 each to raise the money. The require...

Q: You find a zero coupon bond with a par value of $

You find a zero coupon bond with a par value of $10,000 and 24 years to maturity. If the yield to maturity on this bond is 4.2 percent, what is the dollar price of the bond? Assume semiannual compound...

Q: Every two weeks, No More Pencils, Inc., disburses checks

Every two weeks, No More Pencils, Inc., disburses checks that average $124,000 and take seven days to clear. How much interest can the company earn annually if it delays transfer of funds from an inte...

Q: Progressive Applications Corporation, a developer and distributor of business applications software

Progressive Applications Corporation, a developer and distributor of business applications software, has been in business for five years. The company’s main products include programs used for list man...

Q: LEW Company purchased a machine at a price of $100,

LEW Company purchased a machine at a price of $100,000 by signing a note payable, which requires a single payment of $123,210 in two years. a. Assuming annual compounding of interest, what rate of int...

Q: You are considering an investment in a mutual fund with a 4

You are considering an investment in a mutual fund with a 4% load and an expense ratio of .5%. You can invest instead in a bank CD paying 6% interest. a. If you plan to invest for 2 years, what annual...

Q: a. Calculate the value of a call option on the stock

a. Calculate the value of a call option on the stock in Problem 9 with an exercise price of 110. b. Verify that the put-call parity theorem is satisfied by your answers to Problem 9 and part (a). (Do...

Q: You are considering an investment in a mutual fund with a 4

You are considering an investment in a mutual fund with a 4% load and an expense ratio of 0.5%. You can invest instead in a bank CD paying 6% interest a. If you plan to invest for two years, what ann...

Q: a. Calculate the value of a call option on the stock

a. Calculate the value of a call option on the stock in the previous problem with an exercise price of 110. b. Verify that the put-call parity relationship is satisfied by your answers to both Proble...

Q: Calculate the future value of the following annuities, assuming each annuity

Calculate the future value of the following annuities, assuming each annuity payment is made at the end of each compounding period.

Q: Calculate the present value of the following annuities, assuming each annuity

Calculate the present value of the following annuities, assuming each annuity payment is made at the end of each compounding period.

Q: The following table shows three cases, each with one missing element

The following table shows three cases, each with one missing element. Required: Use the bond calculator at www.fncalculator.com to determine the missing element for each case. Assume simple annual c...

Q: The following table shows three cases, each with one missing element

The following table shows three cases, each with one missing element. Required: Use the bond calculator at www.fncalculator.com to determine the missing element for each case. Assume simple annual c...

Q: The following table shows three cases, each with one missing element

The following table shows three cases, each with one missing element. Required: Use the bond calculator at www.fncalculator.com to determine the missing element for each case. Assume simple annual c...

Q: Mike Lynch is the manager of an upstate New York regional office

Mike Lynch is the manager of an upstate New York regional office for an insurance company. As the regional manager, his pay package includes a base salary, commissions, and a bonus, when the region se...

Q: If $1 had been placed in a bank account in the

If $1 had been placed in a bank account in the year 1066 and forgotten until now, how much would be in the account at the end of 2026 if the money earned 2% interest compounded annually? 2% simple int...

Q: Use graphical approximation techniques or an equation solver to approximate the desired

Use graphical approximation techniques or an equation solver to approximate the desired interest rate. Express each answer as a percentage, correct to two decimal places. A person invests $2,000 annua...

Q: Use graphical approximation techniques or an equation solver to approximate the desired

Use graphical approximation techniques or an equation solver to approximate the desired interest rate. Express each answer as a percentage, correct to two decimal places. A $2,000 computer can be fina...

Q: Use graphical approximation techniques or an equation solver to approximate the desired

Use graphical approximation techniques or an equation solver to approximate the desired interest rate. Express each answer as a percentage, correct to two decimal places. At the time they retire, a co...

Q: Use the given annual interest rate r and the compounding period to

Use the given annual interest rate r and the compounding period to find i, the interest rate per compounding period. 3.84% compounded monthly

Q: Use the given annual interest rate r and the compounding period to

Use the given annual interest rate r and the compounding period to find i, the interest rate per compounding period. 2.94% compounded semiannually

Q: Use the given annual interest rate r and the compounding period to

Use the given annual interest rate r and the compounding period to find i, the interest rate per compounding period. 5.44% compounded quarterly

Q: Use the given annual interest rate r and the compounding period to

Use the given annual interest rate r and the compounding period to find i, the interest rate per compounding period. 10.95% compounded daily

Q: Use the given interest rate i per compounding period to find r

Use the given interest rate i per compounding period to find r, the annual rate. 1.57% per quarter

Q: Use the given interest rate i per compounding period to find r

Use the given interest rate i per compounding period to find r, the annual rate. 0.012% per day

Q: Use the given interest rate i per compounding period to find r

Use the given interest rate i per compounding period to find r, the annual rate. 3.69% per half-year

Q: Use the given interest rate i per compounding period to find r

Use the given interest rate i per compounding period to find r, the annual rate. 0.47% per month

Q: Compute the current yield of an 8%, 20-year bond

Compute the current yield of an 8%, 20-year bond that is currently priced in the market at $1,150. Use annual compounding to find the promised yield on this bond. Repeat the promised yield calculation...

Q: An 8.5%, 20-year bond has a par

An 8.5%, 20-year bond has a par value of $1,000 and a call price of $1,050. (The bond’s first call date is in five years.) Coupon payments are made semiannually (so use semiannual compounding where ap...

Q: Using annual compounding, find the yield to maturity for each of

Using annual compounding, find the yield to maturity for each of the following bonds. a. A 9.75%, 18-year bond priced at $962.41 b. A 14%, 20-year bond priced at $1,612.98 c. A 6.25%, 15-year bond pri...

Q: Two bonds have par values of $1,000. One

Two bonds have par values of $1,000. One is a 6%, 20-year bond priced to yield 7%. The other is an 8%, 25-year bond priced to yield 5%. Which of these has the lower price? (Assume annual compounding i...

Q: Restaurant Brands International, Inc. reports the following in footnote 13

Restaurant Brands International, Inc. reports the following in footnote 13 to their financial statements in their 2017 I 0-K related to redeemable preferred stock. Note 13 Redeemable Preferred Shares...

Q: For a given term of a compound interest GIC, the nominal

For a given term of a compound interest GIC, the nominal interest rate with annual compounding is typically 0.125% higher than the rate with semiannual compounding and 0.25% higher than the rate with...

Q: Columbia Trust wants its annually, semiannually, and monthly compounded five

Columbia Trust wants its annually, semiannually, and monthly compounded five-year GICs all to have an effective interest rate of 5.75%. What nominal annual rates should it quote for the three compound...

Q: Belleville Credit Union has established interest rates on its three-year

Belleville Credit Union has established interest rates on its three-year GICs so that the effective rate of interest is 7% on all three compounding options. What are the monthly, semiannually, and ann...

Q: You are offered a loan at a rate of 9% compounded

You are offered a loan at a rate of 9% compounded monthly. Below what nominal rate of interest would you choose semiannual compounding instead?

Q: A credit union pays 5.25% compounded annually on five

A credit union pays 5.25% compounded annually on five-year compound interest GICs. It wants to set the rates on its semiannually and monthly compounded GICs of the same maturity so that investors will...

Q: A life insurance company pays investors 5% compounded annually on its

A life insurance company pays investors 5% compounded annually on its five-year GICs. For you to be indifferent as to which compounding option you choose, what would the nominal rates have to be on GI...

Q: In your search for the best rate on a new-car

In your search for the best rate on a new-car loan, you note that various lenders quote rates with differing compounding frequencies. Your car dealer offers financing at 7.5% compounded monthly. For y...

Q: Calculate the future value after 25 years in each of the following

Calculate the future value after 25 years in each of the following scenarios: 1. $6000 invested at end of each year earning 9% compounded annually. 2. $3000 invested at end of each half-year earning 9...

Q: This problem demonstrates the dependence of an annuity’s future value on the

This problem demonstrates the dependence of an annuity’s future value on the compounding frequency. Suppose $1000 is invested at the end of each year for 25 years. Calculate the future value if the in...

Q: This problem demonstrates the dependence of an annuity’s present value on the

This problem demonstrates the dependence of an annuity’s present value on the compounding frequency. What minimum initial amount will sustain a 25-year annuity paying $1000 at the end of each year if...

Q: Using the Loan Amortization Chart An interactive Loan Amortization Chart is provided

Using the Loan Amortization Chart An interactive Loan Amortization Chart is provided on Connect. In Student Edition, find “Amortizing Loan Calculator.” The chart has data boxes in which you enter valu...

Q: Gurwinder borrowed $2800 from his brother to purchase a 2005 Subaru

Gurwinder borrowed $2800 from his brother to purchase a 2005 Subaru Impreza. He agreed to repay the loan, with 2.5% interest compounding quarterly, in four quarterly payments. Construct the full amort...

Q: Gurwinder borrowed $2800 from his brother to purchase a 2005 Subaru

Gurwinder borrowed $2800 from his brother to purchase a 2005 Subaru Impreza. He agreed to repay the loan, with 2.5% interest compounding quarterly, using quarterly payments of $600 (except for a small...

Q: Calculate: 1. The size of the periodic sinking fund

Calculate: 1. The size of the periodic sinking fund payment. 2. The balance in the sinking fund at the time indicated in the last column. (Round the sinking fund payment to the nearest dollar before c...

Q: Construct the complete sinking fund schedule. Calculate the total interest earned

Construct the complete sinking fund schedule. Calculate the total interest earned by adding up the “interest earned” column and by calculating the difference between the final balance in the fund and...

Q: Construct the complete sinking fund schedule. Calculate the total interest earned

Construct the complete sinking fund schedule. Calculate the total interest earned by adding up the “interest earned” column and by calculating the difference between the final balance in the fund and...

Q: Construct the complete sinking fund schedule. Calculate the total interest earned

Construct the complete sinking fund schedule. Calculate the total interest earned by adding up the “interest earned” column and by calculating the difference between the final balance in the fund and...

Q: Calculate: 1. The size of the periodic sinking fund

Calculate: 1. The size of the periodic sinking fund payment. 2. The balance in the sinking fund at the time indicated in the last column. (Round the sinking fund payment to the nearest dollar before c...

Q: Construct the complete sinking fund schedule. Calculate the total interest earned

Construct the complete sinking fund schedule. Calculate the total interest earned by adding up the “interest earned” column and by calculating the difference between the final balance in the fund and...

Q: For the sinking fund described in Problem 2, prepare a partial

For the sinking fund described in Problem 2, prepare a partial sinking fund schedule showing details of Payments 1, 2, 11, 12, 19, and 20. Round the sinking fund payments and periodic interest earning...

Q: For the sinking fund described in Problem 5, prepare a partial

For the sinking fund described in Problem 5, prepare a partial sinking fund schedule showing details of Payments 1, 2, 39, 40, 59, and 60. Round the sinking fund payments and periodic interest earning...

Q: Calculate: 1. The size of the periodic sinking fund

Calculate: 1. The size of the periodic sinking fund payment. 2. The balance in the sinking fund at the time indicated in the last column. (Round the sinking fund payment to the nearest dollar before c...

Q: Calculate: 1. The size of the periodic sinking fund

Calculate: 1. The size of the periodic sinking fund payment. 2. The balance in the sinking fund at the time indicated in the last column. (Round the sinking fund payment to the nearest dollar before c...

Q: Calculate: 1. The size of the periodic sinking fund

Calculate: 1. The size of the periodic sinking fund payment. 2. The balance in the sinking fund at the time indicated in the last column. (Round the sinking fund payment to the nearest dollar before c...

Q: Calculate: 1. The size of the periodic sinking fund

Calculate: 1. The size of the periodic sinking fund payment. 2. The balance in the sinking fund at the time indicated in the last column. (Round the sinking fund payment to the nearest dollar before c...

Q: Calculate: 1. The size of the periodic sinking fund

Calculate: 1. The size of the periodic sinking fund payment. 2. The balance in the sinking fund at the time indicated in the last column. (Round the sinking fund payment to the nearest dollar before c...

Q: Calculate: 1. The size of the periodic sinking fund

Calculate: 1. The size of the periodic sinking fund payment. 2. The balance in the sinking fund at the time indicated in the last column. (Round the sinking fund payment to the nearest dollar before c...

Q: Which scenario had the higher periodic rate of return: “$1

Which scenario had the higher periodic rate of return: “$1 grew to $2” or “$3 grew to $5”? Both investments were for the same length of time at the same compounding frequency. Justify your choice.

Q: For the five-year period ended October 31, 2019,

For the five-year period ended October 31, 2019, a Canadian Equity Income Fund had compound annual returns of 14.40% while a Canadian Dividend fund had returns of 4.31% compounding annually. How much...

Q: Norma is planning a trip to India when she retires nine years

Norma is planning a trip to India when she retires nine years from now and has calculated that she will need $30,000 in her savings to support her travels. If she contributes $800 to her savings at th...

Q: For a nominal rate of 5.9%, determine the compounding

For a nominal rate of 5.9%, determine the compounding frequency if the periodic interest rate is: 1. 2.95%. 2. 0.491 6 ¯ %. 3. 1.475%.

Q: What is the compounding frequency for a nominal rate of 4.

What is the compounding frequency for a nominal rate of 4.7% if the periodic interest rate is: 1. 1.175%? 2. 0.391 6 ¯ % ?

Q: For a nominal rate of 6.75%, determine the compounding

For a nominal rate of 6.75%, determine the compounding frequency if the periodic interest rate is: 1. 0.5625%. 2. 1.6875%.

Q: Calculate the compounding frequency for a nominal rate of 6.6

Calculate the compounding frequency for a nominal rate of 6.6% if the periodic rate of interest is: 1. 1.65%. 2. 3.3%. 3. 0.55%.