Fairfax Paint just borrowed 62,900 dollars. The terms of the loan require the company to make...

Fairfax Paint just borrowed 62,900 dollars. The terms of the loan require the company to make equal semi-annual payments forever. The first semi-annual payment is due in 6 months. If the regular semi-annual loan payment is 4,450 dollars, then what is the EAR of the loan? Answer as a rate in decimal format so that 12.34% would be entered as .1234 and 0.98% would be entered as .0098.

Caruso is planning to save 4,924.24 dollars every quarter for 12 years. He plans to make his first savings contribution in 3 months from today. If he currently has 6,925 dollars and expects to have 459,539.77 dollars in 12 years from today, then what is the EAR that he expects to earn? Answer as a rate in decimal format so that 12.34% would be entered as .1234 and 0.98% would be entered as .0098

Buck is planning to save $63.65 every six months for 7 years. He plans to make his first savings contribution later today. If he currently has $423.73 saved and expects to have $2,125.26 in 7 years from today, then what is the EAR that he expects to earn? Answer as a rate in decimal format so that 12.34% would be entered as .1234 and 0.98% would be entered as .0098.

Tanner owns an investment that is expected to pay him 3,410 dollars per quarter forever with the next payment of 3,410 dollars expected in 3 months from today. The investment has an annual return of 5.44 percent. What is the value of the investment?

Solutions

Expert Solution

Calculation of Interest Rate for FairFlex

$4450 (Semi Annual Loan payment) / $62900 (Amount of Loan) *365 (No. of Days P.A) / 180 Days (Being Semi annual payment) = 0.1435

Calculation of EAR for Caruso

Total Investment = 4924.24*4 (Compounding periods)*12(Duration of Investment) = $236363.5 (At the end of 12 Years)

EAR= $459539.77 (Expected value after 12 years) - $236363.5 (Amount invested) / $236363.5(Amount Invested) = 0.9442

Calculation of EAR for Buck

63.65*2 (Compounding periods)*7(Duration of Investment) = $891.1 (At the end of 7 Years)

EAR= $2125.26 (Expected value after 12 years) - $891.1 (Amount invested) / $891.1 (Amount Invested) = 1.3850

Calculation of Value of Investment for Tanner

Effective int. for present quarter = $3410 (Next payment in 3 Months) * 5.44% (EAR) / 4 (Compounding periods) = $46.38

Value of Investment = $3410 (Amount invested) + $46.38 (Interest earned) = $3456.38

jeff jeffy answered 1 year ago

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