Question

1. APR vs APY. Catie’s new bank offered her a debt consolidation loan that advertised an Annual Percentage Rate (APR) of 36% annually. When Catie read the fine print, she noticed interest is charged monthly at a rate of 3% per month, compounded monthly. What will Catie’s Annual Percentage Yield (APY) be?		5
Work:
Applying Time Value Concepts
1. Future Value of a Present Amount. Shamus invests $4,800 at 5% rate of annual return for 10 years compounded annually. How much will Shamus have at the end of the 10-year period?		5
Work:

Answer 1

APR vs APY

APY = (1 + r / n)^n

where ,

r = annual rate = 36%

n = number of compoundings = 12

APY = (1 + (36%/12))^12 - 1

APY = 42.5761%

Applying Time value concepts:

Future value = Present value*(1+r)^n

r = rate of interest

n = number of periods

Future value = 4800*(1+5%)^10

= $7818.69

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