What happens to the present value of an annuity as the interest rate increases?

$$\begin{array}{c} \small \textbf{AMOUNT PER \$1.00 INVESTED,}\\ \small \textbf{COMPOUNDED QUARTERLY} \end{array}$$

$$\begin{array}{c c} \small \textbf{Annual Rate} \hspace{10pt}& \small\textbf{Interest Period}\hspace{30pt}\\ \end{array}$$

$$\begin{array}{ c c c} & \textbf{1 year} & \textbf{4 years}\\[5pt] 10.00\% \hspace{10pt}& 1.103813 & 1.484506\\ 10.25\% \hspace{10pt}& 1.106508 & 1.499055\\ 10.50\% \hspace{10pt}& 1.109207 & 1.513738 \end{array}$$

Joe Ponderoza invested $4500 in a certificate of deposit that earns interest at a rate of 10.00% and matures after 4 years. Interest is compounded quarterly. What is the effective annual yield?

For the following exercise,

Determine the value of the annuity for the indicated monthly deposit amount, the number of deposits, and the interest rate.

Deposit amount: $\$ 100$; total deposits: $120$ ; interest rate: $10 \%$, compounded semi-annually

The formula for continuously compounded interest is $A=P e^n$, where $A$ is the total amount, $P$ is the principal, $r$ is the annual interest rate, and $t$ is the time in years. To the nearest tenth, how many years would it take for the value of an investment to double at an annual interest rate of 6 percentage, compounded continuously?

Ron Kenoly Inc. issued $600,000 of 9%, 10-year bonds on June 30, 2020, for$562,500. This price provided a yield of 10% on the bonds. Interest is payable semiannually on December 31 and June 30. If Kenoly uses the effective-interest method, determine the amount of interest expense to record if financial statements are issued on October 31, 2020.

Solve for the unknown interest rate in each of the following:

A company issued bonds with a $100,000 face value, a 5-year term, a stated rate of 6%, and a market rate of 7%. Interest is paid annually. What is the amount of interest the bondholders will receive at the end of the year?

Investigate the difference between compounding annually and simple interest. Round to the nearest cent. Find the interest for a 1-year CD for $5,000 at an interest rate of 2.5% compounded annually.

You are investing P dollars at an annual interest rate of r, compounded continuously, for t years. Which of the following would result in the highest value of the investment? Explain your reasoning. Double your interest rate.

The bank offered a 0.6% interest rate. Find 0.6% of $1300.

Work the following applied problem.

Which of these 20-year zero-coupon bonds will be worth more at maturity: one that sells for $4510, with a 6.1% interest rate, or one that sells for$5809, with a 4.8% interest rate?

To make CDs look more attractive than they really are, some banks advertise that their rates are higher than their competitors’ rates; however, the fine print says that the rate is a simple interest rate. If a person deposits $10,000 at 10% per year simple interest, what compound interest rate would yield the same amount of money in 3 years?

On January 1, 2020. Langley Co. issued 9% bonds with a face value of $700,000 for$656,992 to yield 10%. The bonds are dated January 1, 2020, and pay interest annually. What amount is reported for interest expense in 2020 related to these bonds, assuming that Langley used the effective-interest method for amortizing bond premium and discount?

On May 15, Criqui Outback Clothiers borrowed some money on a 4-month note to provide cash during the slow season of the year. The interest rate on the note was 8%. At the time the note was due, the amount of interest owed was $480.

Instructions

(b) Assume the amount borrowed was$18,500. What was the interest rate if the amount of interest owed was $555?