Australian “Outback” Bush Country & Interest Rates Accounting Assignment Help

Assignment Task

I. Multiple Choice Section:
Each of the following questions is followed by several suggested answers or completions. Do not round any intermediate calculations. Select the best alternative and place the corresponding letter on the accompanying computerized answer sheet.
1. Which of the following statements is most correct?
a. The first payment under a 3-year, annual payment, amortized loan for $1,000 will include a smaller percentage (or fraction) of interest if the interest rate is 5 percent than if it is 10 percent.
b. If you are lending money, then, based on effective interest rates, you should prefer to lend at a 10 percent nominal, or quoted, rate but with semiannual payments, rather than
at a 10.1 percent nominal rate with annual payments.

However, as a borrower you should prefer the annual payment loan.
c. If annual compounding is used, the effective annual rate equals the quoted annual rate.
d. Only statements b and c are correct.
e. All of the statements above are correct.

2. You just graduated, and you plan to work for 10 years and then to leave for the Australian “Outback” bush country. You figure you can save $1,000 a year for the first 5 years and $2,000 a year for the next 5 years. These savings cash flows will start one year from now. In addition, your family has just given you a $5,000 graduation gift. If you put the gift now, and your future savings when they start, into an account that pays 8 percent per year
compounded annually, what will your financial “stake” be when you leave for Australia 10 years from now?
a. $21,432
b. $28,393
c. $16,651
d. $31,148
e. $20,000

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