1. (a) Suppose that the monthly compounded annual interest rate is 2.5%. What is the present value B of 1 pound received in 1 month from today (in other words, the discounting factor)? Give your answer to 6 decimal places. (b) Using the rate in part (a), suppose that you buy a television for 2000 pounds. The store gives you a deal for which you pay immediately 250 pounds and then make a payment A at the end of each month for 5 years until your debt is paid off. What is the payment A? (c) You are offered two different jobs. The salary paid at the end of each year (in thousands of pounds) is Job 1 3 4 A 12 14 16 18 20 16 16 15 15 15 Which job pays best if the annual nominal interest rate is r = 0.1? Which job pays best if instead the annual nominal interest rate is r= 0.2 ? (d) If a bank offers a continuously compounded interest at nominal rate 2%, how long does it take for the amount of money in the bank to triple?
1. (a) Suppose that the monthly compounded annual interest rate is 2.5%. What is the present value B of 1 pound received in 1 month from today (in other words, the discounting factor)? Give your answer to 6 decimal places. (b) Using the rate in part (a), suppose that you buy a television for 2000 pounds. The store gives you a deal for which you pay immediately 250 pounds and then make a payment A at the end of each month for 5 years until your debt is paid off. What is the payment A? (c) You are offered two different jobs. The salary paid at the end of each year (in thousands of pounds) is Job 1 3 4 A 12 14 16 18 20 16 16 15 15 15 Which job pays best if the annual nominal interest rate is r = 0.1? Which job pays best if instead the annual nominal interest rate is r= 0.2 ? (d) If a bank offers a continuously compounded interest at nominal rate 2%, how long does it take for the amount of money in the bank to triple?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:1. (a) Suppose that the monthly compounded annual interest rate is 2.5%. What is the
present value B of 1 pound received in 1 month from today (in other words, the
discounting factor)? Give your answer to 6 decimal places.
(b) Using the rate in part (a), suppose that you buy a television for 2000 pounds. The
store gives you a deal for which you pay immediately 250 pounds and then make a
payment A at the end of each month for 5 years until your debt is paid off. What
is the payment A?
(c) You are offered two different jobs. The salary paid at the end of each year (in
thousands of pounds) is
Job
1
2
4
A
12 14
16
18
20
В
16 16 15
15
15
Which job pays best if the annual nominal interest rate is r = 0.1? Which job pays
best if instead the annual nominal interest rate is r = 0.2 ?
(d) If a bank offers a continuously compounded interest at nominal rate 2%, how long
does it take for the amount of money in the bank to triple?
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