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##### 1. What is the effective rate of 12% compounded an...

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1. What is the effective rate of 12% compounded annually, quarterly, monthly, and daily? 2. If the effective rate is 18%, what is the nominal rate compounded annually, quarterly, monthly, and daily? 3. Assume that you just received your credit card statement and the APR (Annual Percentage Rate) listed on your statement is 21.7%. When you look closer, it states that the interest is compounded daily. What is the EAR (or the Effective Annual Rate) on your credit card? 4. Which investment would you rather own: (i) Investment A is 12% annually; (ii) Investment B is 11.9% semiannually; (iii) Investment C is 11.8% quarterly; or (iv) Investment D is 11.7% daily 5. What is the effective rate of 16% compounded daily, monthly, quarterly, semi-annually, annually? 6. If the effective rate is 12% and compounding is quarterly, compute the nominal rate? 7. You want to invest your money. Bank 1 offers you a rate of 8.5% compounded quarterly. Bank 2 offers you a rate of 8.2% compounded daily. Bank 3 offers you a rate of 8.75% compunded semi-annually. Bank 4 offers you an effective rate of 8.85%. Which bank would you choose? 8. In problem 3, would you change your answer if you were borrowing from one of these banks? Suppose you take a loan of \$50,000 for 5 years with quarterly compounding at 5%. Compute the following: 1. Interest paid in the second year 2. Principle repaid in the third year 3. Balance remaining at the end of the fourth year 4. Total interest paid in the five years Suppose you take a loan of \$50,000 for 5 years with monthly compounding at 5%. Compute the following: 1. Interest paid in the second year 2. Principle repaid in the third year 3. Balance remaining at the end of the fourth year 4. Total interest paid in the five years Suppose you take a loan of \$50,000 for 5 years at 5%. Compute the following: 1. Interest paid in the second year 2. Princ. repaid in the third year 3. Balance remaining at the end of the fourth year 4. Total interest paid in the five years

Paper#5356 | Written in 18-Jul-2015

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