Explore BrainMass

Explore BrainMass

    Compound Interest

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    See the attached file.

    Compound Interest.
    For the next two problems apply formula: A = P(1 + i)n and use scientific calculator.
    I - interest rate per period in decimal form, annual rate divided by number of periods per year
    P - deposit
    n -total number of deposits over all given years

    Problem 1. Retirement Funds
    Five and a half years ago, Chris invested $10,000 in a retirement fund that grew at the rate of 10.82%/year compounded quarterly. What is his account worth today?

    Problem 2. Investment Options.
    Investment A offers a 10% return compounded semiannually, and investment B offer a 9.75% return compounded continuously. What investment has a higher rate of return over a 4 year period?

    Continuous Interest.
    For the next two problems apply formula: A =P e^it and use scientific calculator.
    I - annual interest in decimal form
    P - deposit
    t - number of years

    Problem 3.
    $1,000 was debited on account that has continuous interest with annual interest rate 2%. How much will be on this account after 5 years?

    Problem 4.
    Let's say you put in a bank $5,000. How much will be on your account in 10 years if bank calculates continuous interest with annual interest rate 3%?

    ________________________________________
    Mortgage monthly payment.
    For the next two problems apply formula: R = (i*P)/〖1- (1+i)〗^(-n) and use scientific calculator.
    I - interest rate per month in decimal form, annual rate in decimal form divided by 12
    P - principal, amount you borrow from bank
    n -total number of payments over all given years
    If you have problem with your calculator to find (1+i)^(-n)
    find (1+i)^n first and then divide 1 by this value.
    For example, find (1+0.02)^(-120) .
    Using y^x function on calculator find (1+0.02)^120 = (1.02)^120 = 10.765
    Then (1.02)^(-120) = 1 /10.765 = 0.09289

    Problem 5.
    Calculate monthly payment on a mortgage $200,000.00 over 10 years. Annual percentage rate is 4.8%

    Problem 6.
    Price for the house is $400,000. You paid $40,000 as down payment and the rest took as mortgage. Calculate monthly payment on this mortgage over 30 years. Annual percentage rate is 6%.

    © BrainMass Inc. brainmass.com October 2, 2020, 1:25 am ad1c9bdddf
    https://brainmass.com/business/interest-rates/compound-interest-finance-problems-382282

    Attachments

    Solution Preview

    See the attached file.

    Compound Interest.
    For the next two problems apply formula: A = P(1 + i)n and use scientific calculator.
    I - interest rate per period in decimal form, annual rate divided by number of periods per year
    P - deposit
    n -total number of deposits over all given years
    Problem 1.

    For this problem we first need to define the variables that will be used:

    I = 10.82% = 0.1082
    P = $10,000
    n = 5.5(4) = 22 (this is because there are 4 quarters in a year)

    Next we just substitute the values into the equation above:

    A = P(1 + i)n
    A = 10,000(1 + 0.1082)22
    A = 10,000(1.1082)22
    A = 10,000(9.58516)
    A = 95,850.16

    So 5.5 years from the initial deposit his investment would be worth $95,850.16

    Problem 2.

    It appears that this problem wants us to compare the two different loans. This is a little different as each loan will use a different formula. The first one compounds semiannually so we will use: ...

    Solution Summary

    This solution addresses compounded interest in different finance problems.

    $2.19

    ADVERTISEMENT