Angela loans Kathy $8,000. Kathy repays the loan by paying $5,000 at the end of one and a half years and $5,000 at the end of three years.

Angela loans Kathy $8,000. Kathy repays the loan by paying $5,000 at the end of one and a half years and $5,000 at the end of three years. The money received at t = is immediately reinvested at an annual effective interest rate of 5%. Find Kathy's annual effective rate of interest and Angela's annual yield. (Round your answers to two decimal places.)

Kathy's annual effective rate of interest = ________ %

Angela's annual yield = ___________%

Solutions

Expert Solution

1.
8000-5000/(1+r)^1.5-5000/(1+r)^3=0
=>r=10.565%

2.
=((5000*1.05^1.5+5000)/(8000))^(1/3)-1
=9.0681%

jeff jeffy answered 2 years ago

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