1 - Purdue University
Fund A calculates interest using exact simple interest (actual/actual). Fund B calculates interest using ordinary simple interest (30/360). Fund C calculates interest using the Banker’s Rule (actual/360). All Funds earn 5% simple interest and have the same amount of money deposited on January 1, 2005.
Order the Funds based on the amount in the funds on March 1, 2005 from smallest to largest.
a. Fund A < Fund B < Fund C
b. Fund B < Fund A < Fund C
c. Fund B < Fund C < Fund A
d. Fund A < Fund C < Fund B
e. The correct answer is not given by a., b., c., or d.
1. A series of payments of 100 are made with the first payment made immediately. The second payment is made at the end of year 2. The third payment is made at the end of year 4, etc with the last payment being made at the end of year 12.
_
Calculate t using the method of equated time.
a. 5
b. 6
c. 7
d. 8
e. 9
2. A series of payments are made at the end of each year for 50 years. The amount of the payment at the end of year n is n.
_
Calculate t using the method of equated time.
a. 25.0
b. 31.3
c. 33.7
d. 37.7
e. 40.0
3. The fund pays 1 at time t=0, 2 at time t=2n and 1 at time t=4n. The present value of the payments is 3.61.
Calculate (1+i)n.
a. 1.048
b. 1.052
c. 1.054
d. 1.100
e. 1.111
4. The fund pays 1 at time t=0, 2 at time t=2n and 1 at time t=4n. The present value of the payments is 3.61. You are given that d = 10%.
Calculate n.
a. 0.50
b. 1.00
c. 1.50
d. 2.00
e. 2.50
5. A Fund pays interest at a nominal rate of interest of 6% compounded n times per year. This is equivalent to an annual effective interest rate of 6.15%.
Calculate n.
a. 2
b. 4
c. 6
d. 12
e. 365
6. A Fund earns interest at a nominal rate of interest of 12% compounded monthly. If 1000 is invested in the fund, it will grow to be 5,320.97 after n years.
Calculate n.
a. 14.00
b. 14.75
c. 156.00
d. 168.00
e. 177.00
7. A payment of 20,736 in four years has a present value of 10,000.
Calculate the annual effective rate of interest used to calculate the present value.
a. 5%
b. 10%
c. 15%
d. 20%
e. 25%
8. A fund earns interest at a constant force of interest of δ. Kathy invested 10,000 in the fund. Twenty two years later, Kathy has 30,042.
Calculate δ.
a. 4.88%
b. 5.00%
c. 5.13%
d. 5.26%
e. 5.39%
9. A fund earns interest at a rate equivalent to the rate of discount of d. Megan invested 10,000 in the fund. Eleven years later, Megan has 30,042.
Calculate d.
a. 9.5%
b. 10.0%
c. 10.5%
d. 11.0%
e. 11.5%
10. A fund earns interest at a force of interest of δt = kt. Ryan invests 1000 at time t=0. After 8 years, Ryan has 1,896.50 .
Calculate k.
a. 0.01
b. 0.02
c. 0.03
d. 0.04
e. 0.05
11. A fund earns interest at a force of interest of δt = 0.05t. Lauren invests 2000 at time t=0. After n years, Lauren has 4,919.20 .
Calculate n.
a. 6
b. 7
c. 8
d. 9
e. 10
12. The accumulation function for simple interest is as(t). The accumulation function for compound interest is ac(t).
Determine t such that ac(t) - as(t) is maximized.
a. 0.5
b. (ln i – ln δ)/δ
c. (ln d – ln δ)/δ
d. (ln i – ln d)/d
e. (ln δ – ln d)/d
13. If a fund earns interest at A fund earns interest at a force of interest of δt = 0.01t2.
Calculate the amount of time until the fund triples.
a. 5.9
b. 6.9
c. 7.8
d. 8.8
e. 9.7
14. A fund pays a nominal rate of 12%. The nominal rate is compounded once in year 1, twice in year 2, 3 times in year 3, etc.
Calculate the amount that must be invested today in order to accumulate 5,000 after 6 years.
a. 2442
b. 2451
c. 2460
d. 2475
e. 2533
15. Which of the following are true:
i. The Banker’s Rule (actual/360) is always more favorable to the lender than is exact simple interest (actual/actual).
ii. The Banker’s Rule (actual/360) is always more favorable to the lender than is ordinary simple interest (30/360).
iii. Exact simple interest (actual/actual) is always more favorable to the lender than is ordinary simple interest (30/360).
a. i only
b. ii only
c. iii only
d. i and ii only
e. The correct answer is not given by a., b., c., or d.
16. The present value of 300 in 3 years plus 600 in 6 years is equal to 800.
Calculate i.
a. 2.4%
b. 3.9%
c. 4.9%
d. 5.9%
e. 7.4%
17. Thomas pays 94 into a fund. Six months later, the fund pays Thomas 100.
Calculate the nominal rate of discount convertible semi-annually.
a. 6.00%
b. 6.38%
c. 11.64%
d. 12.00%
e. 12.18%
18. Thomas pays 94 into a fund. Six months later, the fund pays Thomas 100.
Calculate the annual effective rate of interest earned.
a. 6.00%
b. 6.38%
c. 12.00%
d. 12.77%
e. 13.17%
19. Thomas pays 96 into a fund. Six months later, the fund pays Thomas 100.
Calculate the nominal rate of discount convertible monthly.
a. 4.00%
b. 4.14%
c. 7.84%
d. 8.00%
e. 8.14%
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