2. Sergei has just finalized a loan contract at the IVXYZ National Bank. He will receive $1,000 today, and must make equal daily payments to pay off the loan over the next year, with the first payment made tomorrow and the last payment made one year from today. The stated annual interest rate is 3.65%, and interest is compounded daily. How much will Sergei have to pay every day to pay off the loan one year from today? (You can assume there are 365 days this year.) A. $2.80 B. $3.10 C. $3.40 D. $3.80 E. $4.10 3. The stated annual interest rate is 5%, compounded continuously. How many years will it take to double an initial deposit made today? Assume that any interest earned gets re-invested. A. 13.65 B. 13.75 C. 13.85 D. 13.95 E. 14.05 4. Investment A offers to pay $1,000 per year forever, starting one year from today. Investment B offers to pay $11,000 one year from now. For what effective annual discount rate would you be indifferent between the two investments? A. 6% B. 7% C. 8% D. 9% E. 10% 5. Stan will be borrowing $50,000 today, and will pay back the loan with 20 yearly payments, starting one year from today. If the effective annual interest rate is 10%, how much will the final payment be if the amount of principal reduced each year is constant? A. $7,500 B. $6,000 C. $4,000 D. $3,250 E. $2,750 Final payment: Principal reduction: Interest: Total payment amount: $2750
2. Sergei has just finalized a loan contract at the IVXYZ National Bank. He will receive $1,000 today, and must make equal daily payments to pay off the loan over the next year, with the first payment made tomorrow and the last payment made one year from today. The stated annual interest rate is 3.65%, and interest is compounded daily. How much will Sergei have to pay every day to pay off the loan one year from today? (You can assume there are 365 days this year.) A. $2.80 B. $3.10 C. $3.40 D. $3.80 E. $4.10 3. The stated annual interest rate is 5%, compounded continuously. How many years will it take to double an initial deposit made today? Assume that any interest earned gets re-invested. A. 13.65 B. 13.75 C. 13.85 D. 13.95 E. 14.05 4. Investment A offers to pay $1,000 per year forever, starting one year from today. Investment B offers to pay $11,000 one year from now. For what effective annual discount rate would you be indifferent between the two investments? A. 6% B. 7% C. 8% D. 9% E. 10% 5. Stan will be borrowing $50,000 today, and will pay back the loan with 20 yearly payments, starting one year from today. If the effective annual interest rate is 10%, how much will the final payment be if the amount of principal reduced each year is constant? A. $7,500 B. $6,000 C. $4,000 D. $3,250 E. $2,750 Final payment: Principal reduction: Interest: Total payment amount: $2750
2017Winter10am--Test%201--Solutions.docx