Practice Questions

Q.1. A bank pays 6.5% interest after every 4 months. What are the nominal
and effective interest rates per year?
ia = (1 + r/m)m – 1, i=r/m

Q.2. You need $3200 to pay a debt after 6 years. After 4 more years, you
need $1950 more to pay another debt. How much should you put in the
bank today to meet these two needs if the bank pays 6% per year
compounded monthly?

Q.3. For the diagram given below, find P using Annuity formula?
i = 1.25% compounded quarterly P=? 375 375 375 375 375

0 1 2 3 4 5 6 7th year
1
 Practice Questions
Q.4. Grandfather promised to give Rs 3,000 to grandson after each
quarter for 10 years, after completion of 3 years high school, i.e.,
starting from 4th years. He needs to deposit X amount in the bank
so that grandson receives quarterly payments regularly. If the
money is interested at an annual interest rate of 4% (compounded
annually). Calculate X?
i = 4% compounded annually N = 13 j = 3 N-j = 10 A = Rs 3000/-
P=?
 Practice Questions
Q.5. Grandfather promised to give Rs 12,000 to grandson, for 10
years annually, after one year of his graduation from 3 years high
school, i.e., starting from 4th years. He needs to deposit X amount
in the bank so that grandson receives the payments regularly. If the
money is interested @ 4% compounded quarterly.
Calculate X?
i = 4% compounded quarterly N = 13 j = 3 N-j = 10 A = Rs 12000/-
P=?