# Quiz 3: Understanding Money Management

Given information: • Interest rate per month is 1.25 percent. a.Nominal interest rate: Nominal interest rate can be calculated by using the following formula: …… (1)Substitute the respective values in Equation (1) to calculate the nominal interest rate. Hence, the nominal interest rate is percent. b.Effective interest rate: Effective interest rate can be calculated by using the following formula: …… (2)Where, i = Interest rate n = Time period Substitute the respective values in Equation (2) to calculate the effective interest rate. Hence, the effective interest rate is percent.

Given information: • Every month deposit is $1,000. • Compounded monthly interest rate is 6 percent. Hence, monthly interest rate is . • Time period is 10 years. Hence, 120 months. Future value: Future value can be calculated by using the following formula: …… (1)Where, i = Interest rate n = Time period Substitute the respective values in Equation (1) to calculate the future value of the cash flow. The future value of the cash flow is . Hence, option (a) is the correct answer.

Given information: • Monthly compounded interest rate is 1.65 percent. a.Nominal interest rate: Nominal interest rate can be calculated by using the following formula: …… (1)Substitute the respective values in Equation (1) to calculate the nominal interest rate. Hence, nominal interest rate is percent. b.Effective interest rate: Effective interest rate can be calculated by using the following formula: …… (2)Where, i = Interest rate n = Time period Substitute the respective values in Equation (2) to calculate the effective interest rate. Hence, effective interest rate is percent.

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