Chapter 6: Q3Q (page 301)
Question:What is the nature of interest? Distinguish between “simple interest” and “compound interest.”
Interest is the amount charged to use the sum of money. Compound interest is calculated on principle plus interest while simple interest is calculated on only principle
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Question:Jose Oliva is considering two investment options for a $1,500 gift he received for graduation. Both investments have 8% annual interest rates. One offers quarterly compounding; the other compounds on a semiannual basis. Which investment should he choose? Why?
Question:What are the primary characteristics of an annuity? Differentiate between an “ordinary annuity” and an “annuity due.”
Adams Inc. will deposit $30,000 in a 6% fund at the end of each year for 8 years beginning December 31, 2017. What amount will be in the fund immediately after the last deposit?
Using the appropriate interest table, compute the present values of the following periodic amounts due at the end of the designated periods. (a) \(30,000 receivable at the end of each period for 8 periods compounded at 12%. (b) \)30,000 payments to be made at the end of each period for 16 periods at 9%. (c) $30,000 payable at the end of the seventh, eighth, ninth, and tenth periods at 12%
Andrew Bogut just received a signing bonus of \(1,000,000. His plan is to invest this payment in a fund that will earn 8%, compounded annually. Instructions (a) If Bogut plans to establish the AB Foundation once the fund grows to \)1,999,000, how many years until he can establish the foundation? (b) Instead of investing the entire \(1,000,000, Bogut invests \)300,000 today and plans to make 9 equal annual investments into the fund beginning one year from today. What amount should the payments be if Bogut plans to establish the $1,999,000 foundation at the end of 9 years?
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