Problem 6.12 – Calculating EAR
Fundamentals of Corporate Finance
Ross, Westerfield, and Jordan
13th Edition
Compute the EAR in each of the following cases. Calculate the EAR.
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Compute the EAR in each of the following cases. Calculate the EAR.
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In each of the following cases calculate the APR. You are given the Stated Rate (APR), Number of Times Compounded, and the Effective Rate (EAR) for each case.
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How can you compare loans with different compounding periods, given their annual interest rates? Suppose there are two banks offering loans with different compounding periods and annual interest rates: Bank A charges X% compounded monthly, while Bank B charges Y% compounded semiannually. Which bank should you choose if you are a potential borrower? Calculate the EAR for the different banks.
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What interest rate must Evergreen Credit Corp report to potential borrowers if they want to earn an effective annual return on their consumer loans, given that the bank uses daily compounding?
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What is the future value of a given amount in a certain number of years, assuming a specified interest rate and semiannual compounding?
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What will be the future value of a deposit with an initial amount, deposited in Spartan Credit Bank’s savings account with a daily compounding interest rate of 8.3% after 5, 10, and 20 years? (Your numbers will vary)
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What is the present value of an investment that pays $100,000 after 9 years, assuming a daily compounding discount rate of 5.5%? (Your numbers will vary). Find the present value.
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What is the APR and EAR for Big Dom’s Pawn Shop if it charges an interest rate per month on its loans to customers?
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What are the monthly payments and the effective annual rate for a 48-month loan to buy a sports coupe priced at $90,500, given an APR of 7.2%? (Your numbers will vary). Find your monthly payments and the effective annual rate on the loan.
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What is the number of periods required to pay off an overdue account balance if a customer agrees to a fixed repayment schedule per month and interest is charged on the overdue balance at a fixed rate per month?
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