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How often interest is compounded

Problem 1. The terms of a loan indicate how often interest is compounded.

- True
- False

Problem 2. To compound daily means to compound 360 times a year.

- True
- False

Problem 3. The number of compounding periods for $6,600.00 at 12% compounded quarterly for 15 years is 30 periods.

- True
- False

Problem 4. The effective rate of a transaction can be calculated by dividing the interest for one year by the principal.

- True
- False

Problem 5. The interest on $4,200.00 at 8% compounded semiannually for 10 years is $6,292.40.

- True
- False

Problem 6. The effective rate is:

- the stated rate
- the nominal rate
- the true semiannual rate
- the true annual rate
- none of the above

Problem 7. $15,000.00 for 10 years compounded at 10% quarterly results in how many periods?

- 120
- 20
- 10
- 40
- none of the above

Problem 8. In a loan of 8% compounded quarterly, what is the periodic interest

- 2.5%
- 6%
- 2%
- 4%

Problem 9. Present value does not:

- find the present dollar amount
- use the tables
- know the present dollar amount
- know the future value
- none of the above

Problem 10. $25,000.00 for 15 years compounded at 10% quarterly results in a periodic interest rate of:

- 10%
- 7%
- 5%
- 2.5%
- none of the above

Problem 11. The effective rate is:

- the interest for one year divided by the principal
- the interest for one year divided by the principal for three years
- the interest for one year divided by the annual rate
- never related to the compound table
- none of the above

Problem 12. Josh is having difficulty deciding whether to put his savings in the Mercantile Bank or the Boatmen's Bank. Mercantile offers a 10% rate compounded quarterly while Boatmen's offers 12% compounded semiannually. Josh has $40,000.00 to invest and expects to withdraw the money at the end of 5 years. (Use Table 10-1 from the textbook.) The best deal is:

- Mercantile Bank
- Mercantile Bank for the last two years
- Boatmen's Bank for the first two years
- Boatmen's Bank
- none of the above

Problem 13. Don deposited $27,500.00 in Trader's Bank at an interest rate of 12% compounded quarterly. (Use Table 10-1 from the textbook.) The effective rate was:

- 12.55%
- 12%
- 13%
- 14.0%
- none of the above

Problem 14. Lisa wants to attend the University of Colorado. She will need to have $80,000.00 five years from today. Lisa is wondering what she will have to put in the bank today so she will have $80,000.00 in five years. Her bank pays 10% compounded quarterly. By using Table in the textbook, the amount Lisa will need to deposit is:

- $48,281.68
- $49,113.60
- $48,821.60
- $49,113.06
- none of the above

Problem 15. John estimates that he will need $15,000.00 for new equipment in 10 years. John decided that he would put aside the money now so that in 10 years the $15,000.00 will be available. His bank offers him 8% interest compounded semiannually. (Use Table 10-3 from the textbook.) How much must John invest?

- $6,845.85
- $36,175.71
- $6,584.80
- $6,845.08
- none of the above

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## Q : What is the effective annual rate being charged

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?