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2014年4月11日

Assignment Print View

Score: 100 out of 100 points (100%)

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2014年4月11日

1.

Assignment Print View

award:
5 out of
5.00
points
Suppose you can borrow money at 8.6% per year (APR) compounded semiannually or 8.4% per year (APR) compounded monthly.
a. Calculate the Effective Annual Rate. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
8.6%
8.4%

Effective Annual Rate
8.78
%
8.73
%

b. Which is the better deal?
8.4% per year (APR) compounded monthly.

Learning Objective: 05-05
Compare interest rates quoted over different time intervals-for example, monthly versus annual rates. Worksheet

Suppose you can borrow money at 8.6% per year (APR) compounded semiannually or 8.4% per year (APR) compounded monthly.
a. Calculate the Effective Annual Rate. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
8.6%
8.4%

Effective Annual Rate
8.78 %
8.73 %

b. Which is the better deal?
8.4% per year (APR) compounded monthly.
Explanation:
Some values below may show as rounded for display purposes, though unrounded numbers should be used for the actual calculations.
a.
Semiannual compounding means that the 8.6% loan really carries interest of 4.3% per half year.
Similarly, the 8.4% loan has a monthly rate of 0.7%.
Compounding
APR
Period
8.6% 6 months (m = 2/yr)
8.4% 1 month (m = 12/yr)

Effective Annual Rate
1.0432 − 1 = 0.0878 = 8.78%
1.00712 − 1 = 0.0873 = 8.73%

b.
Choose the 8.4% loan for its slightly lower effective rate.

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2014年4月11日

2.

Assignment Print View

award:
5 out of
5.00
points
Old Time Savings Bank pays 4% interest on its savings accounts. If you deposit $1,000 in the bank and leave it there, how much interest will you earn in the first year? The second