Essay about Inflation and Loan

Chapter your five Interest Rates

Difficulty 3

Which will do you prefer: a bank account that pays five per cent per year (EAR) for three years or a. An account that compensates 2 just about every six months for 3 years?

b. An account that pays 7 every 1 . 5 years for three years?

c. An account that pays off per month for 3 years?

In the event you deposit $1 into a bank account that pays 5% each year for three years you will have after 3 years. a. If the consideration pays every 6 months then you certainly will have following 3 years, so that you prefer every single 6 months. n. If the consideration pays per 18 months then you definitely will have after 3 years, which means you prefer five per cent per year. c. If the consideration pays per month then you may have after three years, so you favor every month.

Difficulty 6

Your bank account pays curiosity with an EAR of 5%. What is the APR estimate for this bank account based on semiannual compounding? What is the APR with monthly compounding?

Using the formulation for transforming from an EAR to a APR quotation

With total annual payments e = one particular, so MONTHLY INTEREST = 5%

With semiannual payments e = 2, so APRIL = 5. 939%

With monthly payments k = doze, so APRIL = four. 889%

Problem 16

You may have just bought a car and taken out a $50, 500 loan. The loan has a five-year term with monthly payments and an APRIL of 6%. a. How much will you pay out in fascination, and how much will you spend in principal, during the initial month, second month, and first season? (Hint: Compute the loan harmony after 30 days, two months and one year. ) b. Just how much will you spend in fascination, and how very much will you shell out in main, during the next year (i. e., among there and 4 years by now)?

Timeline:

0| 1| 2| 3| | | | sixty

| В | В | В | В | В | В | В | | В | | В |

| В | В | В | В | В | В | В | | В | | В |

50, 000| –C| –C| –C| | | | –C

a. First, solve for the monthly mortgage payment at 6% APR. The 6% APRIL implies monthly rate of

Every monthly payment can be $966. sixty four. After one month, the balance (principal) of the bank loan...



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