The Mathematics of Money

(Darren Dugan) #1

Copyright © 2008, The McGraw-Hill Companies, Inc.



  1. The Bank of Machias compounds interest on all of its CDs monthly. Ciara opened a 5-year CD there by depositing
    $20,000. The effective rate is 5.85%. How much total interest will she earn?

  2. When Keo opened a CD at Shinglehouse National Bank, he was told that the APY was 6.59%. Interest on his CD
    compounds daily. He deposited $40,000 and the CD’s term was 3 years. What will the CD’s value be at maturity?

  3. Adam hopes to have $250,000 in his retirement savings account when he retires in 35 years. How much would he
    need to have in his account today to reach this goal if he earns an effective interest rate of 7.2%.


E. Using Effective Rates with “Messy” Terms


  1. Irma invested $50,000 for 2^1 ⁄ 2 years at an effective interest rate of 5.9%. How much was her investment worth at the
    end of its term? How much total interest did she earn?

  2. How much interest would a credit union pay on a $475 deposit for 215 days if the effective interest rate was
    2.83%?

  3. Find the future value of $372,000 at a 9.92% effective rate for 9 months.

  4. Mike has a line of credit at his bank, a fl exible type of loan which allows him to borrow money and pay it back as he
    wishes. The effective rate is 17.45%. How much interest would he pay if he borrowed $835.00 and then paid it back
    with interest 37 days later?

  5. How much interest would be paid on a 10-month loan of $3,000 if the effective interest rate were 9.00%?

  6. Determine the present value required to produce a $25,000 future value in 500 days assuming a 12^3 ⁄ 4 % effective
    rate.


F. When “Interest” Isn’t Really Interest


  1. Amazingly Awesome Internet Stuff Corp.’s stock has increased in value over the last 5 years at a rate of 28.4% annually.
    If you had invested $2,000 in the company’s stock 5 years ago, how much would it be worth today?

  2. A union contract sets a worker’s hourly wage at $16.35 an hour this year, and also states that this hourly rate will be
    increased by 3.5% in each of the next 4 years. What will the hourly rate be at the end of the 4 years?

  3. The population of the Republic of Freedonia was 1,534,670 according to the 2007 national census. If the population
    grows at an annual rate of 2.4%, what will the population be in 2017?


Exercises 3.3 125
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