3.A financial institution offers a nominal interest rate of 12% while compounding itsaccounts quarterly.a.b.DWhat is the effective interest rate?For how many years must quarterly deposits of $1,000 be made into thisaccount so that $100,000 will be accumulated at the end of this time?A retail outlet is being designed in a strip mall in Nebraska. For this outlet, theinstalled fiberglass insulation to protect against heat loss in the winter and heat gain in thesummer will cost an estimated $100,000. The annual savings in energy due to the insulation willbe $18,000 at EOY one in the 10-year life of the outlet, and these savings will increase by 12%each year thereafter. If the annual interest rate is 15%, is the cost of the proposed amount ofinsulation justified?

Effective Interest Rate: It refers to the annual rate of interest provided the effects of…

Answered: 3. A financial institution offers a…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 17P

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Del Hawley, owner of Hawleys Hardware, is negotiating with First City Bank for a 1-year loan of 50,000. First City has offered Hawley the alternatives listed here. Calculate the effective annual interest rate for each alternative. Which alternative has the lowest effective annual interest rate? a. A 12% annual rate on a simple interest loan, with no compensating balance required and interest due at the end of the year b. A 9% annual rate on a simple interest loan, with a 20% compensating balance required and interest due at the end of the year c. An 8.75% annual rate on a discounted loan, with a 15% compensating balance d. Interest figured as 8% of the 50,000 amount, payable at the end of the year, but with the loan amount repayable in monthly installments during the year
You put $600 in the bank for 3 years at 15%. A. If Interest Is added at the end of the year, how much will you have in the bank after one year? Calculate the amount you will have in the bank at the end of year two and continue to calculate all the way to the end of the third year. B. Use the future value of $1 table In Appendix B and verify that your answer is correct.
Use the tables in Appendix B to answer the following questions. A. If you would like to accumulate $4,200 over the next 6 years when the interest rate is 8%, how much do you need to deposit in the account? B. If you place $8,700 in a savings account, how much will you have at the end of 12 years with an interest rate of 8%? C. You invest $2,000 per year, at the end of the year, for 20 years at 10% interest. How much will you have at the end of 20 years? D. You win the lottery and can either receive $500,000 as a lump sum or $60,000 per year for 20 years. Assuming you can earn 3% interest, which do you recommend and why?

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3. A financial institution offers a nominal interest rate of 12% while compounding its accounts quarterly. a. What is the effective interest rate? = b. For how many years must quarterly deposits of $1,000 be made into this account so that $100,000 will be accumulated at the end of this time?