ENG106_Homework 3-2024

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University of California, Davis *

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106

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Economics

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Feb 20, 2024

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pdf

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Uploaded by EarlStraw13437

ENG106_Homework 3 Problem 1.a: If your credit card calculates interest based on 17.35% APR, compounded monthly. What is the annual effective interest rate? Problem 1.b: In Problem 1.a, if your current outstanding balance is $3,700 and you skip payments for two months, what would be the total balance two months from now? Problem 2.a: A financial institution specializing in small loans for college students is offering a $400 loan. The borrower is required to pay $26.61 at the end of each week for 16 weeks. Find the interest rate per week. Hint: You can interpolate from the tables in Appendix B of the textbook, use goal seek function in excel or simply extract the interest from the formula in the summary table (Table 2.10). Problem 2.b: In Problem 2.a, What is the effective interest rate per year? (the interest in Problem 2.a is compounded weekly) Problem 3: Which of the following investment options will lead to an accumulated amount exceeding $15,000 over the specified periods? a. $9,545 invested for 12 years at an 8.2% annual interest rate compounded semiannually. b. $6,500 invested for 10 years at a 6% annual interest rate compounded quarterly. c. $4,800 invested for 8 years at a 9% annual interest rate compounded monthly. Problem 4: You have three choices in placing your money in a bank account. Bank A pays 6.12% annually compounded annually. Bank B pays 6.00% annually compounded quarterly.

Bank C pays 5.90% annually compounded continuously. Which bank would you open an account with? Problem 5: A series of equal quarterly payments of $2,500 extends over a period of five years. What is the present worth of this quarterly payment series at 6.88% per quarter compounded continuously? Problem 6.a: You financed your office furniture from a furniture dealer. The dealer's terms consist of 36 equal end-of-month payments for the original $15,000 at an annual interest rate of 9% compounded monthly. Determine the monthly payment you need to make to the furniture store. Problem 6.b: Based on Problem 6.a and after 26 monthly payments, you decided to repay your debt in lump sum (one payment). How much should you pay the company to close the deal? Problem 7: If the CPI for January 2008 is 208.837 and the CPI for December 2018 is 255.539, what is the average annual inflation rate (per year) from Jan 2008 to Dec 2018? Problem 8: Given the cash flows in actual dollars provided in the following table, calculate the present worth value, assuming inflationless interest rate (i’) equal to 16% and the general inflation rate is at 4% each year.

Problem 9: The purchase of a car requires a $12,000 loan to be repaid in monthly installments for four years at an interest rate (APR) of 9% compounded monthly. If the general inflation rate is 2% per month, find the actual-dollar value of the 20th payment of this loan.

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