# Assignment: Basics of Compounding

Topics: Mutual fund, Time, Money Pages: 2 (287 words) Published: February 15, 2013
Carlos goes to the bank to take out a personal loan. The stated annual interest rate is 12%, but interest is compounded monthly and he will make monthly payments. The effective annual interest rate (EAR) of the loan is less than 12%. Your Answer| | Score| Explanation|

False| ✔| 5.00| Correct. You understand compounding.| Total| | 5.00 / 5.00| |
Question Explanation

Basics of compounding.
Question 2
(5 points) Ranjit began setting aside \$6,000 per year in a mutual fund at the age of 25. He has turned 34, and has just made a deposit. The mutual fund has returned 6.5% annually. How much does Rajit have in his account today? Your Answer| | Score| Explanation|

80967| ✔| 5.00| Correct. You know how to calculate the FV of an annuity.| Total| | 5.00 / 5.00| |
Question Explanation

Basic FV calculation. He should have a minimum of \$60,000. Why? Question 3
(5 points) Mohammad has just turned 21 and now has access to the money his parents have been putting away in an account for him since he was 5 years old. His mother has asked him to guess what his account is worth given that they have invested \$1,000 every year in the account starting on his 5th birthday and have just made one. The interest rate on the account has been 3.5% annually. How much is Mohammad’s account worth today? (Enter just the number without the \$ sign or a comma; round off decimals.) Answer for Question 3

You entered:

193141| ✘| 0.00| |
Total| | 0.00 / 5.00| |
Question Explanation

FV value of an annuity calculation. Draw a time line. The amount should be a minimum of \$17,000. Why?