Question

In: Finance

6. Suppose that a loan is offered with quarterly payments and a 13.36% APR. What is...

6. Suppose that a loan is offered with quarterly payments and a 13.36% APR. What is the loan's effective annual
rate (EAR)?
A. 14.21%
B. 14.04%
C. 13.92%
D. 13.81%
E. 13.65%


7. Suppose that a loan is offered with monthly payments and a 10.56% APR. What is the loan's effective annual
rate (EAR)?
A. 10.78%
B. 10.85%
C. 10.92%
D. 11.09%
E. 11.17%


8. Gretchen is 30 years old and has just changed to a new job. She has $37,500 in the retirement plan from her
former employer. She can roll all of that money into the retirement plan of the new employer. She will also
contribute $4,800 at the end of each year into her new employer's plan. If the rolled-over money and the new
contributions both earn an annual return of 5.85%, compounded annually, how much should she expect to
have when she retires in 35 years?
A. $792,398
B. $799,885
C. $810,643
D. $820,912
E. $839,696

9. Olivia is 30 years old and has just changed to a new job. She has $37,500 in the retirement plan from her
former employer. She can roll all of that money into the retirement plan of the new employer. She will also
contribute $400 at the end of each month ($4,800 per year) into her new employer's plan. If the rolled-over
money and the new contributions both earn an annual return of 5.85%, compounded monthly, how much
should she expect to have when she retires in 35 years?
A. $860,728
B. $843,576
C. $839,696
D. $820,912
E. $810,643

Solutions

Expert Solution

6. EAR =(1+13.36%/4)^4-1=14.04% Option B is correct

7. EAR=(1+10.56%/12)^12-1=11.09% Option D is correct

8. Value of rolled over money at the age of 35 or (35-30) i.e 5 years later=37500*(1+5.85%)^5=$49829.39

Value of new contribution at the age of 35= $26977.13. Calculation is given below:

Total Fund Value at the age of 55=(49829.39+26977.13)= $76806.52

All of the given options are incorrect.

9. Monthly interest rate= 5.85%/12=0.4875%

Value of $37500 at the end of 5 year or 60 month=37500*(1+0.4875%)^60=$50205.79

Value of $400 deposit at the end of each month for 60 month is=27800.69

Total Value of the fund= (27800.69+50205.79)=$78006.48

All of the given options are incorrect.


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