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Homework answers / question archive / Trine University MGT 413 Part 2 1)Compounding interest means the following: Two different interest rates are used for the same loan

Trine University MGT 413 Part 2 1)Compounding interest means the following: Two different interest rates are used for the same loan

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Trine University

MGT 413

Part 2

1)Compounding interest means the following:

    1. Two different interest rates are used for the same loan.
    2. The interest rate is determined by the borrower, not the lender.
    3. Dividing the interest into components.
    4. Interest is earned not only on the initial balance, but also on previously received interest payments.

 

  1. Assume you deposit $100 in an account at 10% interest rate and leave it in the account for three years. In year 3, the interest on previously received interest component will be equal to

a. $1.00.

b. $21.00.

c.     $2.10.

d.   $0.21.

 

  1. Assume $400 to be received in year 4 has a present value equal to $350. If we keep the same interest rate assumption, but instead assume that the $400 is received in year 5 we know that the resulting present value must be
    1. Larger than $400.
    2. Larger than $350.
    3. Smaller than $350.
    4. Equal to $350.

 

 

 

 

  1. If we use zero as the number of time periods in the PV formula the formula will still give as a correct answer.
    1. True
    2. False

 

  1. If you deposit $350 in an account today at 6% annual interest rate, 6 years from today you will have                                            in your account.

a. $496.48

b. $2,226.00

c.     $371.00

d.   $386.00

 

  1. How much do you need to deposit in your account today if you want to have $12,000 accumulated in your account in 5 years? Assume 7% interest rate.

a.   $2,400.00

b.   $8,528.18

c.     $8,555.83

d. $16,830.62

 

  1. We can omit the negative sign when inputting present and future values into a financial calculator; the calculator will still be able to solve the problem.
    1. True
    2. False
  2. What entry will go into a financial calculator under the “I” key if the relevant annaul interest rate is 4.5%?

a. 450

b. 0.45

c.     0.045

d. 4.5

 

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