Question

9f) What is the future value of $2,750 after six years under 5.6% daily compounding? Assume 365 day years and do not do any interim rounding.

9g) What is the effective annual rate for 5.6% (APR) interest with daily compounding?

Will the effective annual rate ever be equal to the simple (quoted) rate? Explain.

(a) Assume that you have borrowed $15,000 for 3 years and you have an annual interest rate of 5.6% (annual percentage rate or APR). What is the monthly payment due on the loan?

(b) Switch gears here and now assume that the payments are made annually. What is the annual interest expense for the borrower (this is also the annual interest income for the lender) during Year 1? (Hint: Go to the TVM lecture notes for multiple cash flows and go to slide 15.)

3. You are about to buy a home; the purchase price of the car is $200,000 and you are paying 10% of that amount as a down payment and financing the remainder. Your mortgage loan terms are 30 years of monthly payments at an annual rate of 3.25%.

1. How much are your monthly mortgage payments?

2. Over the life of the loan, how much did you pay in interest?

4. a) Suppose on January 1 you deposit $2,750 in an account that pays a quoted interest rate of 2.35% (APR), with interest added (compounded) daily. How much will you have in your account on October 1, or after 9 months? (assume N = 273 days) Recall that the interest rate (I/Y) represents the periodic rate based on how many times per YEAR the interest is compounded. Hint, this is 365 times per year. As above, and all TVM type problems, there should be no interim rounding of the interest rates.

b) Now suppose you leave your money in the bank for 21 months. Thus, on January 1 you deposit $2,750 in an account that pays an APR of 2.35% compounded daily. How much will be in your account on October 1 of the following year? (assume N = 638 days)

Answer 1