ECON 3050 HWK #3, Fall 2015 NAME_____________________________________Score______ Print Last Name, First Name

| November 24, 2016

ECON 3050

HWK #3, Fall 2015

NAME_____________________________________Score______
Print Last Name, First Name

You must fill in the blanks with the values, equation used, and answer to receive credit. ASSUME ANNUAL
COMPOUND INTEREST UNLESS STATED OTHERWISE. Refer to the list in Lecture 6 at the bottom of
page 4 for the guidelines to follow in order to receive full credit for your answers. Please read and follow all
instructions. Your work must be neat, well labeled, and must match your answer to receive credit. If a problem
does not say ‘Show your work,’ then you do not have to show your work.
You may print Hwk #3 double-sided; if you print it on two pages, both pages must be stapled together in
the upper left corner to receive credit. This assignment is worth 10 points.
1.

How much will a $1,000 deposit today that earns 2% annual compound interest grow to in 7 years?

PV = ______________ FV = ______________ i = ___________ n = _____________ PMT = _____________
Equation:___________
Answer:
2.

How much must be deposited at 4% annual interest, compounded quarterly, to have $4,000 in 3 years?

PV = ______________ FV = ______________ i = ___________ n = _____________ PMT = _____________
Equation:___________
Answer:
3.

A financial asset that is guaranteed to pay $10,000 in one lump sum in 4 years is offered for a price of
$8,000. In financial terms, is this a good deal assuming that an account that guarantees 4.8% annual
interest, compounded monthly, is the best alternative use of the funds?

PV = ______________ FV = ______________ i = ___________ n = _____________ PMT = _____________
Equation:___________
Fill in the blank with either
Answer:______________________________________________ (it is a good deal or it is not a good deal)
4.

Which loan results in the lowest cost to the borrower?
Loan A: $1,000 loan at 11% annual simple interest for 4 years
Loan B: $1,000 loan at 9.5% annual compound interest for 4 years

Show your work in the space below.

Answer: Loan

results in the lowest cost to the borrower.
1

5.

a.

What is the value in 4 years of $2,000 if the annual interest rate is 10%, continuously
compounded?

PV = ______________ FV = ______________ i = ___________ n = _____________ PMT = _____________
Show your work in the space below.

Answer:
b.

How will the value in 4 years of the $2,000 compare to the answer above if interest is
compounded monthly instead of continuously?

Answer: It will be
6.

(fill in the blank with higher or lower or the same)

How much will you have in four years in an account that earns 2% annual compound interest if $500 is
deposited in year 1, $400 is deposited in year 2, $600 is deposited in year 3, and $100 is deposited in
year 4? Show your work in the space below.

Answer:
7.

a.

What is the effective annual rate on a $12,000 loan at 8.4% annual interest, compounded
monthly? Show your work in the space below.

Answer:
b.

What is the APR in the first year of the loan if there are no other costs (fees) associated with the
loan?

Answer:
c.

What is the APR in the first year of the loan if there is a $100 upfront fee for the loan? Show
your work in the space below.

Answer:
8.

Approximately how many years will it take $10,000 to double if it is left in an account that earns 9%
interest?

Answer:
2

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