PRESENT VALUE OF AN ANNUITY Find the present values of these ordinary annuities. Discounting occurs once a year.
$400 per year for 10 years at 10%
$200 per year for 5 years at 5%
$400 per year for 5 years at 0%
Rework parts a, b, and c assuming they are annuities due.
EFFECTIVE VERSUS NOMINAL INTEREST RATES Bank A pays 4% interest compounded annually on deposits, while Bank B pays 3.5% compounded daily.
Based on the EAR (or EFF%), which bank should you use?
Could your choice of banks be influenced by the fact that you might want to withdraw your funds during the year as opposed to at the end of the year? Assume that your funds must be left on deposit during an entire compounding period in order to receive any interest.
PAYING OFF CREDIT CARDS Simon recently received a credit card with an 18% nominal interest rate. With the card, he purchased an Apple iPhone 5 for $372.71. The minimum payment on the card is only $10 per month.
If Simon makes the minimum monthly payment and makes no other charges, how many months will it be before he pays off the card? Round to the nearest month.
If Simon makes monthly payments of $35, how many months will it be before he pays off the debt? Round to the nearest month.
How much more in total payments will Simon make under the $10-a-month plan than under the $35-a-month plan? Make sure you use three decimal places for N.