Time Value of Money : Practice Questions

A short-term loan specifies an interest rate of $$2\%$$ per month. What is the effective annual interest rate (EAR) for this loan? (Round to two decimal places in percentage)

A personal loan agreement specifies a nominal annual interest rate of \(10\%\) compounded quarterly. How many compounding periods are there in one year?

Mr. Chan invests $$HK\$50,000$$ in a fixed deposit account offering an annual interest rate of $$6\%$$, compounded annually. What will be the value of his investment after 2 years?

A savings plan offers an annual interest rate of \(4\%\) compounded quarterly. If an investor leaves the money in the account for 9 months, how many times will interest be calculated and added to the principal?

An investment of $$HK\$8,000$$ today grows to $$HK\$8,820$$ in 2 years with annual compounding. What is the annual interest rate?

A savings account provides a nominal interest rate of \(8\%\) per annum, compounded semi-annually. Calculate the effective annual rate of return.

Mr. Kwok deposits $$HK\$25,000$$ into a savings account that offers an annual interest rate of $$2.5\%$$ compounded annually. Calculate the total amount Mr. Kwok will have in his account after two years.

Ms. Lee is considering various short-term investments for her funds.

(a) A financial institution offers a fixed deposit with a nominal annual interest rate of $$2.6\%$$ compounded semi-annually. Calculate the effective annual interest rate for this fixed deposit.

(b) Separately, Ms. Lee plans to invest $$HK\$10,000$$ for 3 months at an annual interest rate of $$3\%$$ compounded quarterly. Calculate the future value of this investment after 3 months.