discussion question week 7

BUSN 5200

Discussion questions

1 EAR vs APR

Back when interest rates and inflation were about 18%, Congress passed the Truth in Lending Law, requiring lenders to show both figures to prospective borrowers.

A.If the APR on a car loan is 6%, with interest compounded annually, whats the EAR?

1 whats EAR if interest is compounded monthly?

2 if compounded Daily?

3 WHY are these 3 answers different?

4 you are thinking of getting a 3 year car loan, for $12,000; the car dealer says the APR is 8%

5 if you make 3 EQUAL end of year payments, how big is each payment

6 if you make 36 EQUAL end of month payments, how big is each payment

your parents decide to buy an annuity for their new grand child. They plan to pay $10,000 to a bank to buy a 10 year $100/month annuity. What is their rate of return or yield on this annuity purchase