Question

9.

Diane Barvello deposits $1,380 in a certificate of deposit for 3 years.
Find the compound amount if the interest rate is 5% compounded daily.


$1,587.00

$1,603.31

$1,597.53

$1,603.32
10.
John Wong makes $63,800 per year maintaining a self-storage business.

He was notified of a 3.3% raise in a year in which the CPI index increased
by 4.4%.

Find the gain or loss in his purchasing power.


loss of $701.80

gain of $701.80

loss of $2105.40

gain of $2105.40
11.
Angler’s Edge, worth $12 million, is expected to grow at 5% per year compounded annually for 7 years.

Find the future value to the nearest million.

$16 million

$18 million

$17 million

$19 million

Answer 1

Question 1:
A = P{1+r/365}^n

P = $1,380; r= 5% = 0.05; n = 3*365 =1095 (since it is compounded daily)
Substituting;

A = 1380(1+0.05/365)^1095 = $1,603.31

Question 2:
Earning in base year = $63,800
Earning in target year = 63,800*1.033 = $65,905.40

Purchasing power= Base year earning/Target year earning = {63800/65905.4}*100 = 96.81% which is equivalent to 65905.4-63800 = $2,105.40 loss in purchasing power.

Question 3:
A = P{1+r}^n, where P= $12 million, r= 5% = 0.05, n = 7 years

Then,

A= 12(1+0.05)^7 = 16.89 ≈ $17 million