1 of 8 0-day streak

Model and interpret a periodic cash-flow recurrence

Question 1 of 8

Calculator allowed

A balance is tracked for the business reserve account at the end of each year

$V_n$ is the balance, in dollars, after $n$ years. The initial balance $V_0$ is recorded before the first period's interest

The initial balance is $116,000. The nominal annual interest rate is 7%, compounded annually

A regular addition of $1,750 is made at the end of each year

Interest is applied first. The regular cash flow is made at the end of each year; payments per year and compounding periods per year are both 1

V_{n+1}=R V_n+sD

(a)3 marks

Fill the three values that define the cash-flow recurrence

$V_0$ ($) $R$ $D$ ($)

(b)1 mark

Choose the signed $D$ term for this balance model

-D

+D

Convert the nominal annual rate to the rate for one year

$r_{year}$ (%)

Format: exact value

(d)1 mark

State the nominal annual rate, using the number of periods per year

Nominal annual rate (%)

Format: exact value

(e)1 mark

Choose the statement that matches the stated balance process

The regular addition is made before interest is applied to the balance

The fixed cash-flow term is the interest amount for every period

The reserve balance receives a regular addition after interest in each period