You deposit $4,000 today in a bank that promises to pay an annual interest of 8%? a. What is future value of this sum at the end of 12 years? b. What if the bank pays 8% interest compounded monthly? What if the bank pays 8% interest compounded quarterly? c. What interest will the bank have to pay if the future value has to be $12,000 at the end of 12 years? d. Using information from (la) only, what quarterly compounded interest rate should the bank quote in order to provide the same interest as the 10% annual rate? What should be the quoted continuously compounded rate if it is to be the same as the 10% annual rate? Provide the rates per annum. e. What is the APR? Do we use APR or EAR when we are calculating the present value of an investment?

You deposit $4,000 today in a bank that promises to pay an annual interest of 8%? a. What is future value of this sum at the end of 12 years? b. What if the bank pays 8% interest compounded monthly? What if the bank pays 8% interest compounded quarterly? c. What interest will the bank have to pay if the future value has to be $12,000 at the end of 12 years? d. Using information from (la) only, what quarterly compounded interest rate should the bank quote in order to provide the same interest as the 10% annual rate? What should be the quoted continuously compounded rate if it is to be the same as the 10% annual rate? Provide the rates per annum. e. What is the APR? Do we use APR or EAR when we are calculating the present value of an investment?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 31P

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