Reference no: EM132175188

Mathematics of Finance Homework -

1. What is the effective interest rate when the stated interest rate is 6%?

(a) Compounded semiannually;

(b) Compounded quarterly;

(c) Compounded continuously?

2. Suppose that you deposit your money in a bank that pays interest at a nominal rate of 8.5%. Nominal interest rate is defined as a stated interest rate. This interest rate is the simple interest and does not take into account the compounding periods. How long will it take for your money to double if interest compounded continuously?

3. Consider a $1978 loan to be paid in 8 equal installments every 6 months at 6.75% interest rate (annual). The maturity of the loan is 4 years. Fill in the chart.

Per	Payment	PV Factor	Formula
1
2
3
4
5
6
7
8
Total

4. Suppose that you are to receive payments (in thousands of dollars) at the end of each year for the next five years. Which of the payment sequence is preferred?

A: 12,14,16,18,20;

B: 16,16,15,15,15;

C: 20,16,14,12,10

5. Suppose you are borrowing $100,000 to purchase a house. The terms of the loan are monthly installment payments over 15 years, interest rate of 0.6% per month. There is a loan initiation fee of $600, a house inspection fee of $400, and 1 point. A point is 1% fee paid to the bank when the loan is received. What is the 'effective interest rate' of the loan being offered?

Note - Can you do questions 4 and 5? Thanks.