FIN 534 RANK Imagine Your Future /fin534rank.com FIN 534 RANK Imagine Your Future /fin534rank.com | Page 54

CFs. This is, essentially, a trial-and-error procedure that is easy with a
computer or financial calculator but quite difficult otherwise.
d. If you solve for I and get a negative number, then you must have
made a mistake.
e. If CF0 is positive and all the other CFs are negative, then you cannot
solve for I.
3. Riverside Bank offers to lend you $50,000 at a nominal rate of 6.5%,
compounded monthly. The loan (principal plus interest) must be repaid
at the end of the year. Midwest Bank also offers to lend you the $50,000,
but it will charge an annual rate of 7.0%, with no interest due until the
end of the year. How much higher or lower is the effective annual rate
charged by Midwest versus the rate charged by Riverside?
a. 0.52%
b. 0.44%
c. 0.36%
d. 0.30%
e. 0.24%
4. Steve and Ed are cousins who were both born on the same day, and
both turned 25 today. Their grandfather began putting $2,500 per year
into a trust fund for Steve on his 20th birthday, and he just made a 6th
payment into the fund. The grandfather (or his estate\'s trustee) will
make 40 more $2,500 payments until a 46th and final payment is made
on Steve\'s 65th birthday. The grandfather set things up this way because