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Chapter 12 Quiz 6
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Terms in this set (20)
The nominal rate is really the true rate.
False
Interest = principal X rate divided by the time.
False
Jim Moore opened a new savings account. He deposited $12,000 at 12 percent compounded semiannually. At the start of the fourth year, Jim deposits an additional $50,000 that is also compounded semiannually at 12 percent. At the end of 6 years, the balance in Jim Moore's account is: (Use the tables in the handbook)
None of the above
Compounding results in earning higher interest than simple interest.
True
Merle Fonda opened a new savings account. She deposited $40,000 at 10 percent compounded semiannually. At the start of the fourth year, Merle deposits an additional $20,000 that is also compounded semiannually at 10 percent. At the end of 6 years, the balance in Merle's account is: (Use the tables in the handbook)
$98,636.72
Ray Long wants to retire in Arizona when he is 75 years of age. Ray, who is now 60, believes he will need $200,000 to retire comfortably. To date, he has set aside no retirement money. If he gets an interest of 12 percent compounded semiannually, he will have to invest today: (Use the tables in the handbook)
$34,820
Amy Cohl wants to attend S.M.V. University. She will need to have $70,000 five years from today. Amy is wondering what she will have to put in the bank today so she will have $70,000 five years hence. Her bank pays 12 percent, compounded quarterly. By using tables in the handbook, the amount Amy will have to deposit is:
$38,759
Compounding looks into the present when we know what we have in the future.
False
Using the interest for daily compounding (in your handbook) $700 would grow to $790 at the end of 3 years, at 8% interest.
False
The effective rate (APY) is:
True annual rate
The annual rate a bank advertises is the same as the effective rate.
False
Present value starts with the future and tries to calculate its worth in the present.
True
Effective rate (APY) is:
Interest for one year divided by principal
Find effective rate (APY) and show work.
$5,000
Interest rate
: 10%
Compounded semiannually
PV 5000
Time 4
APR 10%
Pers / yr 2
Per Rate 5.000000%
# of pers 8
FV $7,387.28
Al Miler, owner of Al's Garage, estimates that he will need $29,000 for new equipment in 15 years. Al decided that he would put aside the money now so that in 15 years the $29,000 will be available. His bank offers him 10 percent interest compounded semiannually. (Use the tables in the handbook) Al must invest today:
None of the above
Ann Jons, owner of Ann's Sport Shop, loans $6,000 to Rusty Katz to help him open an art shop. Rusty plans to repay Ann at the end of 7 years with interest compounded semiannually at 16 percent. At the end of 7 years, Ann will receive: (Use the tables in the handbook)
$17,623.20
The interest on $4,000 at 12 percent compounded semiannually for 6 years is: (Use table in the handbook)
$4,048.80
Solve by using compound table.
$15,000
12%
4 years
Quarterly
Total Amount = ?
PV 15000
Time 4
APR 12%
Pers / yr 4
Per Rate 3.000000%
# of pers 16
FV $24,070.60
Compounding:
Calculates interest periodically
$50,000 for 14 years compounded at 12 percent quarterly results in a rate per period of:
3 percent
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