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Homework answers / question archive / Problem 1 (Problem 4-7, Page 121): First Corp Bank advertises interest paid at 2% every 6 months

Problem 1 (Problem 4-7, Page 121): First Corp Bank advertises interest paid at 2% every 6 months

Economics

Problem 1 (Problem 4-7, Page 121): First Corp Bank advertises interest paid at 2% every 6 months. What is the APR?

 Problem 2 (Problem 4-11, Page 121): You plan to deposit $100 per week into a fund that pays interest of 6% per year, compounded quarterly. Identify the interest period, compounding period, and number of times interest is compounded per interest period.

 Problem 3 (Problem 4-20, Page 121): Videotech specializes in online security software development. It wants to have $65 million available in 3 years to pay stock dividends. How much money must the company set aside now in an account that earns interest at a rate of 12% per year, compounded quarterly?

Problem 4 (Problem 4-25, Page 122): The patriot missile, developed by Lockheed Martin, is designed to detect, identify, and shoot down aircraft and other missiles. The Patriot Advanced Capability-3 was originally promised to cost $3.9 billion, but due to extra time needed to develop computer code and scrapped tests (due to high winds) at White Sands Missile Range, the actual cost was much higher. If the total project development time was 10 years and costs increased at a rate of 0.5% per month, what was the final cost of the project?

Problem 5 (Problem 4-31, Page 122): Hemisphere, LLC is planning to outsource its 51-person information technology (1T) department to Dyonyx. Hemisphere's president believes this move will allow access to cutting-edge technologies and skill sets that would be cost prohibitive to obtain on its own. If it is assumed that the loaded cost of an IT employee is $100,000 per year and that Hemisphere will save 25% of this cost through outsourcing, determine the present worth of the total savings for a 5-year contract at an interest rate of 6% per year, compounded monthly.

Problem 6 (Problem 4-38, Page 123): Thermal Systems, a company that specializes in odor control for wastewater treatment plants, made deposits of $100,000 now and $25,000 every 6 months for 2 years. Determine the future worth after 2 years of the deposits for i = 16% per year, compounded quarterly. Problem 7 (Problem 4-42, Page 123): Frontier Airlines hedged the cost of jet fuel by purchasing options that allowed the airline to buy fuel at a fixed price for 2 years. The savings in fuel costs were $140,000 in month 1, $141,400 in month 2, and amounts increasing by 1% per month through the 2-year option period. What was the present worth of the savings at an interest rate of 18% per year, compounded monthly?

Problem 8 (Problem 4-52, Page 124): What effective interest rate per 6 months is equal to a nominal 2% per month, compounded continuously?

Problem 9: A person is planning to open a retirement account. He plans is to deposit $1,000 per month for next 45 years. This person visits four local banks and recorded the interest rates: Bank A) 0.08% per month compounded monthly Bank B) 6.2% per year compounded continuously Bank C) 8% per year compounded monthly Bank D) 7% per year compounded semi-annually Determine 1) Which bank should be selected? 2) How much money will be accumulated in 45 years in the selected bank?

Problem 10: Determine P & F for the diagram below: For the first seven years, interest is 12% per year compounded monthly and for the last three years, the

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