Question 1 (a) A lecturer borrows £10,000 from a bank with an effective interest rate of 3.5% annum. She pays back the loan after 5 years. How much does she pay back? (b) Determine the AER corresponding to the nominal rate of discount d(¹²) = 7% p annum. (c) Suppose you are paying off your new fridge by monthly instalments of £25 paid
Question 1 (a) A lecturer borrows £10,000 from a bank with an effective interest rate of 3.5% annum. She pays back the loan after 5 years. How much does she pay back? (b) Determine the AER corresponding to the nominal rate of discount d(¹²) = 7% p annum. (c) Suppose you are paying off your new fridge by monthly instalments of £25 paid
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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Transcribed Image Text:Question 1
(a) A lecturer borrows £10,000 from a bank with an effective interest rate of 3.5% per
annum. She pays back the loan after 5 years. How much does she pay back?
(b) Determine the AER corresponding to the nominal rate of discount d(¹²) = 7% per
annum.
(c) Suppose you are paying off your new fridge by monthly instalments of £25 paid in
arrears over five years. Assuming an effective interest rate of 3% per annum, what
was the price of the fridge?
(d) Determine the value of the symbol ā for an AER of 6%.
(e) In return for a loan of £500, a loan shark charges £1 per day payable when the
loan is paid back. What is the APR if you pay back the loan and fees after 155
days?
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