Reference no: EM132531095

Question 1: "An individual retirement account (IRA) offers a risk-free option with a nominal 8% interest rate, compounded monthly. You get paid two times per month (the 1st and the 15th of the month) and decide to invest $640 per pay period into the IRA. This is a situation where the payment periods occur more frequently than the compounding periods. Assume that a deposit starts to earn interest whenever the deposit is made, so that there are 0.5 interest periods per payment period. With this assumption, what is the value of the IRA after 12 years? HINT: The assumption allows you to know the value of C, and you should be able to find the value of K based on C."

Question 2: "You deposit $15,000 in a savings account that pays a nominal interest rate of 5.2% compounded monthly. 3 years later, you deposit $15,000. 3 years after the second deposit, you make another deposit in the amount of $15,000. 5 years after the third deposit, half of the accumulated funds are transferred to a fund that pays a nominal interest rate of 8.5% compounded quarterly. How much total will you have in the accounts 5 years after the transfer?"

Question 3: "You are opening an individual retirement account (IRA) that earns 8% interest compounded daily. You wish to make monthly deposits into the IRA. You also want to purchase a new car for $24,000. You plan to set aside $800 every month, which will be divided between your IRA and your car payment. You are considering between two options:

OPTION 1: Make a down payment of $5,400 on the vehicle and borrow $18,600 at an APR of 9.8%, compounded monthly for 3 years. During these 3 years, you will deposit what remains of the $800 in the IRA (i.e., you will deposit $800 minus your car payment). After the vehicle is paid off at the end of 3 years, you will deposit $800 a month into your IRA.

OPTION 2: Make a down payment of $5,400 on the vehicle and borrow $18,600 at an APR of 9.8%, compounded monthly for 10 years. During these 10 years, you will deposit what remains of the $800 in the IRA (i.e., you will deposit $800 minus your car payment). After the vehicle is paid off at the end of 10 years, you will deposit $800 a month into your IRA.

Your goal is to maximize the amount in your IRA at the end of 31 years. Enter the dollar value of the IRA corresponding to the best option."

Question 4: "You are borrowing $28,000 at a nominal rate of 8% compounded monthly for 32 months. What is the balance of your loan immediately after your 29th payment?"

Question 5: Republic Finance offers money at 0.85% per month compounded monthly. Assume Republic Finance changes to continuous compounding but decides to keep the ANNUAL NOMINAL INTEREST rate the same as with the monthly compounding. How many years will it take for an investment to quadruple with this continuous compounding? (Your answer can be a decimal.)

Question 6: "You are borrowing $18,000 at a nominal rate of 6% compounded monthly for 48 months. What is the balance of your loan immediately after your 20th payment?"