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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A bank is offering a special deal. If you invest X now, the bank will give you 15,000 at time 7; 14,000 at time 8; 13,000 at time 9; and so on with the last payment being at time 14. Using an annual effective interest rate of 8%, determine X.
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1. You want to buy a car, and a local bank will lend you $15,000. The loan will be fully amortized over 5 years (60 months), and the nominal interest rate will be 8% with interest paid monthly. What will be the monthly loan payment? What will be the loan's EAR? Do not round intermediate calculations. Round your answer for the monthly loan payment to the nearest cent and for EAR to two decimal places 2. What is the present value of a $400 perpetuity if the interest rate is 8%? If interest rates doubled to 16%, what would its present value be? Round your answers to the nearest cent. 3. You borrow $90,000; the annual loan payments are $12,852.25 for 30 years. What interest rate are you being charged? Round your answer to the nearest whole number.
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