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Finance Exercise on Annuities and Interest Rates

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Questions and Answers

What is the total value of the 8 annuities of 22,500 DH each on 31/10/2004 given a quarterly interest rate of 4.5%?

180,000 DH
172,500 DH (correct)
200,000 DH
150,000 DH

If the semestral rate t1 is known, how is the equivalent annual rate t calculated given that t1 - t2 = 0.06%?

t = 2 * t1 + 0.06%
t = 2 * t1
t = t1 + 0.06%
t = 2 * t1 - 0.06% (correct)

What is the formula for calculating the future value of annuities paid quarterly at an interest rate of 4.5%?

|A = P × r / ((1 + r)^n - 1)|
|A = P / r × (1 - (1 + r)^-n)|
|A = P × ((1 + r)^n - 1) / r| (correct)
|A = P × (1 + r)^n|

Which of the following statements correctly describes the relationship between t1 and t2?

<p>t1 equals t2 plus 0.06%. (C)</p> Signup and view all the answers

If a quarterly interest rate is 4.5%, what is the equivalent annual nominal interest rate?

<p>18% (A)</p> Signup and view all the answers

Flashcards

Calculate annuity value

Determine the present value of a series of future payments (annuities) given specific details like payment amount, payment frequency, and interest rate.

Annuity payment amount

The fixed amount paid at regular intervals (in this case, quarterly) as part of an annuity.

Interest rate

The percentage representing the cost or return of borrowing or lending money.

Semestral rates

Interest rates applied over a six-month period.

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Equivalent rate

A single rate that would produce the same result as applying a different rate series, like semestral rates.

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Study Notes

Exercise 3

Calculate the value of an 8-year annuity with payments of 22,500 DH each, starting on 31/10/93.
The interest rate is 4.5% per quarter.
The calculation should be performed on 31/10/2004.

Exercise 4

A certain interest rate (t) has semiannual interest rates (t1) and (t2) which are proportional and equivalent.
The relationship between these rates is t1 - t2 = 0.06%.
Calculate the annual interest rate (t).

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