2024 – 1 Monthly compounding If you bought a 1 000 face value CD that

2024 – 1 Monthly compounding If you bought a 1 000 face value CD that.

1. (Monthly compounding) If you bought a $1,000 face value CD that matured in nine months, and which was advertised as

paying 9% annual interest, compounded monthly, how much would you receive when you cashed in your CD at maturity?

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2. (Annualizing a monthly rate) You credit card statement says that you will be charged 1.05% interest a month on unpaid

balances. What is the Effective Annual Rate (EAR) being charged?

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beginning&nbsp

3. (FV of annuity due) To finance your newborn daughter’s education you deposit $1,200 a year at the beginning of each of the

next 18 years in an account paying 8% annual interest. How much will be in the account at the end of the 18th year?

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4. (Rate of return of an annuity) Paul’s Perfect Peugeot says they’ll sell you a brand new Italian“Iron Man” motor scooter for

$1,699. Financing is available, and the terms are 10% down and payments of $46.57 a month for 40 months. What annual 

interest rate is Paul charging you?

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5. (Rate of return of an annuity) You would like to have $1,000,000 40 years from now, but the most you can afford to invest

Annual rate

each year is $1,200. What annual rate of return will you have to earn to reach your goal?

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Monthly loan payment

6. (Monthly loan payment) Best Buy has a flat-screen HDTV on sale for $1,995. If you could borrow that amount from Carl’s

Credit Union at 12% for 1 year, what would be your monthly loan payments?

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Annuity payment

7. (Solving for an annuity payment) You would like to have $1,000,000 accumulated by the time you turn 65, which will be

40 years from now. How much would you have to put away each year to reach your goal, assuming you’re starting from zero

now and you earn 10% annual interest on your investment?

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8. (PV of a perpetuity) If your required rate of return was 12% a year, how much would you pay today for $100 a month

forever? (that is, the stream of $100 monthly payments goes on forever, continuing to be paid to your heirs after your death)

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9. (PV of an uneven cash flow stream) what is the PV of the following project?

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(Assume r = 10%)

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Year Cash Flow

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1 $10,000

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2 $10,000

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3 $10,000

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4 $20,000

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10. (FV of an uneven cash flow stream) what is the FV at the end of year 4 of the following project?

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(Assume r = 10%)

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Year Cash Flow

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1 $10,000

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2 $10,000

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3 $10,000

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4 $20,000