1. An investor reads in an advertisement that a particular company pays 5.25% per annum compounded daily on its accounts. It is also claimed that this rate is equivalent to an effective rate of5.39% per annum. Is this claim true? The investor has at the present momentf10,000 in an account paying 5% per annum compounded quarterly. If the investor transfers to this account how much extra interest will be earned in the first year?
2. An investment of f4000 is made for 12 years. During the first 5 years the interest rate is 9% per annum converted semi-annually and then drops to 8% per annum converted semi-annually for the remainder of the term of the investment. What is the final amount in the account?
3. Mr Johnson has a small savings account which is pays 4.5% per annum interest compounded daily. He opened the account with a deposit of £250 on January 2 and one month later deposited £230. Two months later he made a further deposit off425. One month later he deposited f309 at which time the interest rate had fallen to 4.25% per annum. Four months later he withdrew f200, followed by two further withdrawals of f200 in subsequent months. How much does he have in the account at the end of the year?
4. Determine an expression for the number of years it would take for your funds to triple if you received interest at the rate ofi per annum compounded annually. What would the expression be if the interest were compounded monthly? Compare these results if the interest rate is 5% per annum.
5. You are considering two possible investments in which the retums at the end of each year for the next 6 years are: Scheme A: £500, f500, f400, f300, f300, f200 Scheme A: £2000, £200, f300, £400, £500, f600 Given that the interest rate is to remain fixed at 3.75%, which scheme is preferable? What is the difference in the value ofthe two schemes?
6. If the force of interest is 0.0725 what is the effective interest per annum?