Question

Challenge question I. Michael is shopping for a special automobile. He finds the exact car he​ wants, a 1966 dark blue Pontiac GTO. This car is currently the property of a​ neighbor, so to buy it for the​ agreed-upon price of ​$40,000​, Michael must secure his own financing. He visits four different financial institutions and gets the following available​ loans:

Bank​ 1:  60 monthly payments of ​$782.65

Bank​ 2:  72 monthly payments of ​$667.65

Bank​ 3:  208 weekly payments of ​$219.56  ​(Assume a​ 52-week year.)

Bank​ 4:  12 quarterly payments of $3,667.20

Which loan should Michael​ take?  ​Hint:  Which loan has the lowest​ EAR?

1. If Michael selects Bank 1 for the​ loan, what is the periodic interest rate on the​ loan?

______​% ​(Round to four decimal​ places.)

2. If Michael selects Bank 1 for the​ loan, what is the EAR on the​ loan?

____​% ​(Round to two decimal​ places.)

3. If Michael selects Bank 2 for the​ loan, what is the periodic interest rate on the​ loan?

___​% ​(Round to four decimal​ places.)

4. If Michael selects Bank 2 for the​ loan, what is the EAR on the​ loan?

____​% ​(Round to two decimal​ places.)

5. If Michael selects Bank 3 for the​ loan, what is the periodic interest rate on the​ loan?

___​% ​(Round to four decimal​ places.)

6. If Michael selects Bank 3 for the​ loan, what is the EAR on the​ loan?

___​% ​(Round to two decimal​ places.)

7. If Michael selects Bank 4 for the​ loan, what is the periodic interest rate on the​ loan?

___​% ​(Round to four decimal​ places.)

8. If Michael selects Bank 4 for the​ loan, what is the EAR on the​ loan?

___​% ​(Round to two decimal​ places.)

9. Which loan should Michael​ take?  ​(Choose the best​ response.)

Bank 3

Bank 4

Bank 2

Bank 1

Answer 1