ia = r m 1+-) - 1 m PART A.) Find the effective annual interest rate for a credit card that lists an APR of 18% compounded monthly. PART B.) An engineer who is saving for a new house plans on saving $100 per paycheck towards the down payment on the house. If she gets paid bi-weekly (twice per month), and she is depositing this money into a savings account that earns 5% annual interest, compounded monthly, how much money does she have saved up after 4 years? Assume that there is no inter-period interest.
ia = r m 1+-) - 1 m PART A.) Find the effective annual interest rate for a credit card that lists an APR of 18% compounded monthly. PART B.) An engineer who is saving for a new house plans on saving $100 per paycheck towards the down payment on the house. If she gets paid bi-weekly (twice per month), and she is depositing this money into a savings account that earns 5% annual interest, compounded monthly, how much money does she have saved up after 4 years? Assume that there is no inter-period interest.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Part a) & b)
Not using the excel!
Transcribed Image Text:ia
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PART A.) Find the effective annual interest rate for a credit card that lists an APR of 18%
compounded monthly.
PART B.) An engineer who is saving for a new house plans on saving $100 per paycheck
towards the down payment on the house. If she gets paid bi-weekly (twice per month), and she
depositing this money into a savings account that earns 5% annual interest, compounded
monthly, how much money does she have saved up after 4 years? Assume that there is no
inter-period interest.
PART C.) The cost of replacing part of a cell phone video chip production line in 6 years
estimated to be $500,000. At an interest rate of 10% per year, compounded quarterly, the
uniform amount that must be deposited every 3 months is?
Expert Solution
Step 1
The effective annual rate is the return that the investment provides after considering the effect of compounding. The FV of the investment refers to the value of its cash flows assuming they grow at a fixed rate.
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