Question

please explain how to solve the problems. having torubke understanding where to start.

1. which of the following gives the smallest annual interest if 1 year is 365 days?

a) 10.20% APR compounded annually

b) 9.50% APR compounded quaterly

c) 9.35% APR compounded monthly

d) 9.30% APR compounded daily

2. you are considering buying a house. Your current annual salary is $100,000 and you want the monthly payment to be no more than 25% of your monthly income. You can get a 25-year mortgage at 4.2% APR. Insurance and taxes will be $300 per month and must be included when calculating your maximum loan amount. If you can make a down payment if $30,009, what is the maxmium amount you can spend on a house?

a) $360,894

b) $416,650

c) $386,560

d) $330,895

Answer 1

			Effective Annual Interest:
			APR=i
			Number of Compounding in a year=n
			Effective Annual Interest=R
			1+R=(1+(i/n))^n
			R=((1+(i/n))^n)-1
			i	n	R=(1+((i/n)^n))-1
			APR	Number of compounding in a year	Effective annual interest	Effective interest 9%)
	10.20%	a	0.1020	1	0.102	10.200%
	9.50%	b	0.0950	4	0.098438279	9.844%
	9.35%	c	0.0935	12	0.097612779	9.761%
	9.30%	d	0.0930	365	0.097448735	9.745%
			Smallest annual interest	9.745%
			ANSWER:
			d. 9.3% APR compounded daily