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From the interest statement 18% per year, compounded monthly, determine the values for interest period, compounding period, and compounding frequency.

From the interest statement 18% per year, compounded monthly, determine the values for interest period, compounding period, and compounding frequency.

Financial Accounting: The Impact on Decision Makers
Financial Accounting: The Impact on Decision Makers
10th Edition
ISBN:9781305654174
Author:Gary A. Porter, Curtis L. Norton
Publisher:Gary A. Porter, Curtis L. Norton
Chapter9: Current Liabilities, Contingencies, And The Time Value Of Money
Section: Chapter Questions
Problem 9.12E
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1. From the interest statement 18% per year, compounded monthly, determine the values for interest period, compounding period, and compounding frequency. 2. Determine the number of times interest would be compounded in 6 months from the interest statements (a) 18% per year, compounded monthly, (b) 1% per month, and (c) 2% per quarter. 3. Identify the compounding period for the following interest statements: (a) 3% per quarter; (b) 10% per year, compounded semiannually; (c) nominal 7.2% per year, compounded monthly; (d) effective 3.4% per quarter, compounded weekly; and (e) 2% per month, compounded continuously. 4. Assume you deposit 25% of your monthly check of $5500 into a savings account at a credit union that compounds interest semiannually. (a) What are the payment and compounding periods? (b) Is the payment period greater than or less than the compounding period? 5. If you deposit $1000 per month into an investment account that pays interest at a rate of 6% per year, compounded quarterly, how much will be in the account at the end of 5 years? There is no interperiod compounding. 6. What effective interest rate per quarter is equal to a nominal 1.6% per month, compounded continuously? 7. Companies such as GE that have huge amounts of cash fl ow every day base their financial calculations on continuous compounding. If the company wants to make an effective 25% per year, compounded continuously, what nominal daily rate of return has to be realized? Assume 365 days per year. 8. Periodic outlays for inventory control software at Baron Chemicals are expected to be $150,000 immediately, $200,000 in 1 year, and $350,000 in 2 years. What is the present worth of the costs at an interest rate of 10% per year, compounded continuously? 9. Many small companies use accounts receivable as collateral to borrow money for continuing operations and meeting payrolls. If a company borrows $300,000 now at an interest rate of 1% per month, but the rate changes to 1.25% per month after 4 months, how much will the company owe at the end of 1 year? 10. The maintenance cost for furnaces at a copper smelting plant have been constant at $140,000 per year for the past 5 years. If the interest rate was 8% per year for the first 3 years and then it increased to 10% in years 4 and 5, what is the equivalent future worth (in year 5) of the maintenance cost?
Transcribed Image Text:1. From the interest statement 18% per year, compounded monthly, determine the values for interest period, compounding period, and compounding frequency. 2. Determine the number of times interest would be compounded in 6 months from the interest statements (a) 18% per year, compounded monthly, (b) 1% per month, and (c) 2% per quarter. 3. Identify the compounding period for the following interest statements: (a) 3% per quarter; (b) 10% per year, compounded semiannually; (c) nominal 7.2% per year, compounded monthly; (d) effective 3.4% per quarter, compounded weekly; and (e) 2% per month, compounded continuously. 4. Assume you deposit 25% of your monthly check of $5500 into a savings account at a credit union that compounds interest semiannually. (a) What are the payment and compounding periods? (b) Is the payment period greater than or less than the compounding period? 5. If you deposit $1000 per month into an investment account that pays interest at a rate of 6% per year, compounded quarterly, how much will be in the account at the end of 5 years? There is no interperiod compounding. 6. What effective interest rate per quarter is equal to a nominal 1.6% per month, compounded continuously? 7. Companies such as GE that have huge amounts of cash fl ow every day base their financial calculations on continuous compounding. If the company wants to make an effective 25% per year, compounded continuously, what nominal daily rate of return has to be realized? Assume 365 days per year. 8. Periodic outlays for inventory control software at Baron Chemicals are expected to be $150,000 immediately, $200,000 in 1 year, and $350,000 in 2 years. What is the present worth of the costs at an interest rate of 10% per year, compounded continuously? 9. Many small companies use accounts receivable as collateral to borrow money for continuing operations and meeting payrolls. If a company borrows $300,000 now at an interest rate of 1% per month, but the rate changes to 1.25% per month after 4 months, how much will the company owe at the end of 1 year? 10. The maintenance cost for furnaces at a copper smelting plant have been constant at $140,000 per year for the past 5 years. If the interest rate was 8% per year for the first 3 years and then it increased to 10% in years 4 and 5, what is the equivalent future worth (in year 5) of the maintenance cost?
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