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Math 1090-002 05 December 2011 Section 5.2 Homework Instructions: Complete the following problems in the space provided. Please show your work; write down enough so that a classmate could follow the steps you’ve taken to arrive at the solution. Simple Interest 4. $10,000 is deposited into a savings account for five years at a simple (annual) interest rate of 12%. (a) What is the value of the savings account at the end of the year? (b) What is the value of the savings account at the end of the 5 year period? (c) What is the value of the savings account at the halfway point, after two and one half years have passed? 1 Compound Interest Which of the given options would pay the greatest amount of interest? How much more would it pay? (Recall that I = S - P.) 16. $25,000 saved for 3 years at an annual interest rate of: (a) 6%, compounded quarterly (b) 6.1%, compounded semiannually 18. $50,000 saved for 5 years at an annual interest rate of: (a) 10%, compounded monthly (b) 10.2%, compounded quarterly 2 21. Compare the value, after 5 years, of $10,000 invested at 4.5% compounded monthly and the same investment at the same interest rate, compounded daily. 24. How long would it take to double one’s money with a 10% return (i.e. a 10% annual interest rate) compounded monthly? 3 30. (pretty morbid, but a good problem) Elaine’s father was executed by lethal injection in Texas in 1969. Before his death, he had deposited $2000 in a bank account earning 8% interest, compounded quarterly. Elaine just discovered its existence. What did she inherit from her late father in 2010? 4