Answer to Question #165037 in Financial Math for saleemaslam

Question

 You invested $7,500 in a savings account that pays interest of 3.6% compounded monthly. What is the value of your investment after 17 months?

a. $7,365.70   b. $13,682.87    c. $7,891.82    d. $7,541.45    e. None of these

 

12. A non-interest-bearing promissory note has a face value of $950. Find the proceeds of this note if it is discounted 3½ years before its maturity date at 8% compounded quarterly.

a.  $719.98      b.  $725.67     c. $771.65     d. $657.22         e. None of these

 

Answer 1

Solution.

1) The formula for calculating the value of investment:

$$B=A(1+\frac{p}{100})^n,$$

where $B$ is the future value;

$A$ - current value;

$p$ - interest rate for the settlement period (day, month, year, ...);

$n$ is the number of settlement periods.

Сalculate the amount after 17 months:

$B=7,500(1+\frac{3.6}{100})^{\frac{17}{12}}=\newline 7,500*1.036^{\frac{17}{12}}=7,885.35$$

Answer. e None of these

2) The formula for calculating the value of the note:

$$P=S(1-\frac{d}{m})^{m\cdot n},$$

where $P$ is the value of the note;

$S$ - face value;

$d$ - interest rate for the settlement period (day, month, year, ...);

$m$ is number of charges per year.

$P=950(1-\frac{0.08}{4})^{4\cdot 3.5}=715.96$ $

Discount of this note $S-P=950-715.96=234.04$ $

Answer. e None of these