INVOLVING INTEREST 1. You put $1000 into an investment yielding 6% annual interest; you left the money in for two years. How much interest do you get at the end of those two years? Given: P = $1000 r = 0.06 (because I have to convert the percent to decimal form) t = 2 Find: I Solution: I = Prt I = (1000) (0.06) (2) I= 120 2. You invested $500 and received $650 after three years. What had been the interest rate
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CHAPTER 14 INTEREST RATE AND CURRENCY SWAPS SUGGESTED ANSWERS AND SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS QUESTIONS 1. Describe the difference between a swap broker and a swap dealer. Answer: A swap broker arranges a swap between two counterparties for a fee without taking a risk position in the swap. A swap dealer is a market maker of swaps and assumes a risk position in matching opposite sides of a swap and in assuring that each counterparty fulfills its contractual obligation
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reserve like a savings account or a 401k to pay bills. 2. Three to six months of income in a emergency savings account only to be used in the case of an emergency. 3. A savings that offered compound interest because not only will you earn money on what you have saved‚ but you also earn money on the interest you received on that money. 4. Daily compounding because you would have the best annual return‚ the amount would grow faster than annual or quarterly compounding. Each day the savings grow
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REVIEW 1. (L.O. 1) Chapter 6 discusses the essentials of compound interest‚ annuities and present value. These techniques are being used in many areas of financial reporting where the relative values of cash inflows and outflows are measured and analyzed. The material presented in Chapter 6 will provide a sufficient background for application of these techniques to topics presented in subsequent chapters. 2. Compound interest‚ annuity‚ and present value techniques can be applied to many
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ALTERNATIVE PROBLEMS AND SOLUTIONS ALTERNATIVE PROBLEMS 5-1A. (Compound Interest) To what amount will the following investments accumulate? a. $4‚000 invested for 11 years at 9% compounded annually b. $8‚000 invested for 10 years at 8% compounded annually c. $800 invested for 12 years at 12% compounded annually d. $21‚000 invested for 6 years at 5% compounded annually 5-2A. (Compound Value Solving for n) How many years will the following take? a. $550 to grow to $1‚043.90 if invested
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value one year from now of a $7000 investment at a 3 percent annual compound interest rate. Also calculate the future value if the investment is made for two years. P2 Find the future value of $10000 invested now after five years if the annual interest rate is 8 percent. a. What would be the future value if the interest rate is a simple interest rate? b. What would be the future value if the interest rate is a compound interest rate? P3 Determine the future values if $5000 is invested in
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Case Study –Brac Bank Ltd 16-20 INTRODUCTION: Interest Rate Risk - In the process of FIs performing their asset-transformation function‚ FIs are exposed to Interest Rate Risk‚ from Mismatched Maturity/Duration: Borrowing Short‚ Lending Long. The risk that an investment ’s value will change due to a change in the absolute level of interest rates‚ in the spread between two rates‚ in the shape of the yield curve or in any other interest rate relationship. Such changes usually affect securities
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role of engineering economics is to assess the appropriateness of a given project‚ estimate its value‚ and justify it from an engineering standpoint. This chapter discusses the time value of money and other cash-flow concepts‚ such as compound and continuous interest. It continues with economic practices and techniques used to evaluate and optimize decisions on selection of fire safety strategies. The final section expands on the principles of benefit-cost analysis. An in-depth treatment of the practices
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that involve interest rates and time period that are not available in the tables. OUTLINE OF THE NOTE A. Simple Interest B. Compound Interest 1. Single Amount • Future Value • Present Value • Finding the time period • Finding interest rate • Effective annual rate (EAR) • Continuous compounding 2. Multiple Cash Flows i) Annuity • The basics • Future Value of Annuity • Present Value of Annuity • Finding the number of payments of an annuity • Finding the interest rate ii)
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promised in the future (Garrison‚ 2006). Today money can be invested to earn interest and therefore will be worth more in the future (Brealey‚ Myers‚ & Marcus‚ 2004). This paper will explain how annuities affect time value of money (TVM) and investment outcomes. In addition‚ this paper will briefly address the impact of discount and interest rates‚ present value‚ future value‚ opportunity cost and the impact interest has on money being borrowed. Time Value of Money Present Value is an amount today
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