Web App 5A
1. If you receive $15,000 today and can invest it at a 4.25% annual rate compounded continuously, what will be your
ending value after 20 years?
a.
$41,060.80
b.
$43,517.43
c.
$35,094.70
d.
$28,426.71
e.
$36,849.44
c
b.
c.
d.
e.
1
MODERATE
5A Continuous Compounding and Discounting
2. In six years’ time, you are scheduled to receive money from a trust established by your grandparents. When the trust
matures there will be $100,000 in the account. If the account earns 5.75% compounded continuously, how much is in the
account today?
a.
$82,153.56
b.
$69,405.59
c.
$61,615.17
d.
$70,822.04
e.
$59,490.51
d
3. Assume one bank offers you a nominal annual interest rate of 6% compounded daily while another bank offers you
continuous compounding at a 5.9% nominal annual rate. You decide to deposit $1,050 with each bank. Exactly two years
later you withdraw your funds from both banks. What is the difference in your withdrawal amounts between the two
banks? Assume 365 days in a year. Do not round your intermediate calculations
a.
$1.77
b.
$2.24
c.
$2.35
d.
$2.71
e.
$2.94
c
b.
c.
d.
e.
1
MODERATE
5A Continuous Compounding and Discounting
True
4. You have $5,436.60 in an account that pays 9.40% interest, compounded continuously. If you deposited some funds 12
years ago, how much was your original deposit? Round your answer to the nearest dollar.
a.
$1,637
b.
$1,760
c.
$1,566
d.
$2,006
e.
$1,461
b
b.
c.
d.
e.
1
MODERATE
b.
c.
d.
e.
1
MODERATE
5A Continuous Compounding and Discounting
True
5. How much should you be willing to pay for an account today that will have a value of $1,000 in 24 years under
continuous compounding if the nominal rate is 8.20%?
a.
$111.79
b.
$139.74
c.
$156.50
d.
$171.88
e.
$167.68
b
b.
c.
d.
e.
1
MODERATE
5A Continuous Compounding and Discounting
True
6. You need a down payment of $17,200 in order to purchase your first home 4 years from today. You currently have
5A Continuous Compounding and Discounting
True
Web App 5A
$14,014 to invest. In order to achieve your goal, what nominal interest rate, compounded continuously, must you earn on
this investment? Do not round your intermediate calculations.
a.
5.48%
b.
5.12%
c.
3.84%
d.
4.46%
e.
6.20%
b
b.
c.
d.
e.
1
CHALLENGING
5A Continuous Compounding and Discounting
True
7. You place $1,000 in an account that pays 7% interest compounded continuously. You plan to hold the account exactly 3
years. Simultaneously, in another account you deposit money that earns 7.40% compounded semiannually. If the accounts
are to have the same amount at the end of the 3 years, how much of an initial deposit do you need to make now in the
account that pays 7.40% interest compounded semiannually? Do not round your intermediate calculations.
a.
$1,150.77
b.
$882.92
c.
$992.04
d.
$1,220.21
e.
$744.03
c
8. For a 10-year deposit, what annual rate payable semiannually will produce the same effective rate as 5.00%
compounded continuously? Do not round your intermediate calculations.
a.
4.46%
b.
5.06%
c.
4.10%
d.
4.81%
e.
4.91%
b
b.
c.
d.
e.
1
CHALLENGING
5A Continuous Compounding and Discounting
True
Web App 5A