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The following exercises are a mixture of problems primarily from the topics covered Chapter 3. One of the objectives of
these exercises is to be able to correctly identify which topics and tools are needed for each problem. While the emphasis is
on material covered in Chapter 3, some problems covering material from Chapters 1 and 2 may also be included. All of the
material covered in this chapter is “fair game”, except for optional topics, which are not included in these exercises.- Abigail deposits $4,000.00 in a certifi cate of deposit at a bank for 3 years at an interest rate of 8.36%
compounded quarterly. Find (a) the value of the certifi cate at the end of the 3 years and (b) the total amount of
interest earned. - Bruce needs to borrow $7,300 for 2 years. Colden National Bank offers him the loan at 7.26% compounded daily, and
Angola National Bank offers him the loan at 7.35% compounded monthly. (a) How much would he need to pay back
at each bank? (b) Which bank is offering the better deal? - Sylvia is shopping around for a bank to open a savings account. She considers three: NetnetBank, which offers a rate
of 4.35% compounded annually; SNB Bank, which offers 4.29% compounded weekly; and TJBank, which offers 4.17%
compounded daily. Which of the three banks offers the best deal? - Jayson is 35 years old and has set the goal of retiring at age 60 with $750,000. (a) How much money does he need to
set aside today to reach his goal, assuming his investments earn an effective annual interest rate of 11.4%? (b) How
much would he have had to set aside if he had started 15 years earlier? (c) Rework both (a) and (b), assuming that
instead his investments earn only 5%. - Eden Financial is offering an interest rate of 6.25% compounded daily on 1-year certifi cates of deposit. Derby Savings
Bank is offering a higher rate, 6.35%, but that rate compounds quarterly. Which would be the better choice for your
deposit? - Cheyenne has invested $3,000 in a 5-year bank certifi cate on which the interest rate is 6¼% compounded daily. Find
the value of the certifi cate at the end of fi ve years in two ways:
a) Calculate the FV using the 6¼% compounded daily rate.
b) Find the effective rate and then use it to fi nd the FV.
c) Do your answers to (a) and (b) match? If not, explain why not.- Find the effective interest rate equivalent to 12.7% compounded daily (bankers’ rule).
- Frank has borrowed $12,349.16 at an interest rate of 14% compounded monthly for 17 months.
a) Calculate the amount needed to repay the loan using the given interest rate.
b) Find the equivalent annual rate for the given interest rate.
c) Calculate the amount needed to repay the loan using the equivalent annual rate.CHAPTER 3
EXERCISES