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Quiz 4 answer key Math 1030-005 (Fall 2014) AP R nY ) . n 1. Compound interest formula: A = P × (1 + (4 points) Compute the balance of the following account: $20000 is invested for 20 years with an APR of 3.5% and quarterly compounding. Ans: A = 20000 × (1 + 3.5% (4×20) ) 4 ≈ 40152.61 2. Savings plan formula: A = P M T × R nY (1+ AP ) −1 n AP R n . (4 points) You’d like to create a college fund for your child. Suppose you find a fund that offers an APR of 5%. How much should you deposit monthly to accumulate $70000 in 15 years? Ans: 70000 = P M T × ⇒P M T = 70000 × (1 + (1 + 5% (12×15) ) 12 5% 12 5% 12 5% (12×15) ) 12 −1 −1 ≈ 261.89 3. Continuous compounding formula: A = P × eAP R×Y . (1) You put $7000 in account with an APR of 3% for 10 years. Assume the interest is calculated using continuous compounding. What is the balance? (3 points) (2) Calculate the annual return: ( PA )1/Y − 1. (1 point) Ans: (1) 7000 × e3%×10 ≈ 9449.01. (2) ( PA )1/Y − 1 = eAP R − 1 = e0.3 − 1 ≈ 0.3499 = 34.99%. (Wrong) I have a topo here. The correct answer should be e0.03 − 1 ≈ 0.03045 = 30.45% End of Quiz