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Question -- Chp 2 ---Theory of Interest (Kellison

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  • Question -- Chp 2 ---Theory of Interest (Kellison

    Question 4 : Method A assumes simple interest over final fractional periods, while Method B assumes simple discount over final fractional periods. The annual effective rate of interest is 20%. Find the ratio of the present value of a payment to be made in 1.5 years computed under Method A to that computed under Method B.

    Question 17 : A loan is negotiated with the leader agreeing to accept $1000 after 10 years, 2000 after 20 years, and 3000 after 30 years in full payment. The borrower wishes to liquidate the loan with a single $6000 payment. Let T1 represent the time of the $6000 payment calculated by an equation of value. Let T2 represent the time determined by the method of equated time. If i=.01, find T1-T2 to the nearest .10. Use linear interpolation in the tables.

    Question 28 : A bank offers the following certificates of deposit:
    Nominal annual interest rate
    Term in years (vonvertible semiannually)
    1 5%
    2 6%
    3 7%
    4 8%
    The bank does not permit early withdrawal. The certificates mature at the end of the term. During the next six years the bank will continue to offer these certificates of deposit. An investor deposits $1000 in the bank. Calculate the maximum amount that can be withdrawn at the end of six years.
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