Find the effective rate of interest per month

Reference no: EM132796125

Questions -

Q1. (a) Given the nominal annual rate of interest compounded monthly is 12%, find the effective rate of interest per month. What is its equivalent effective rate of interest per annum?

(b) Given the nominal annual rate of interest compounded semiannually is 8%, find the effective rate of interest per month.

(c) Given that the effective rate of interest per year is 6%, find the nominal annual rate of interest convertible 12 times and 2 times per year, respectively.

Q2. A loan of amount $10, 000 at a nominal annual interest rate of 9% compounded monthly is repaid by monthly payments over two years, starting one month after the loan is made.

(a) Find the monthly payment.

(b) Calculate the interest portion and the principal portion within the first two monthly installments.

(d) Find the total cost of this loan.

(e) If the monthly payment is doubled for the second year, find the monthly payment amount for the second year.

Q3. John borrows $20, 000 to purchase a car. The car dealer finances the purchase and offers John two alternative financing plans, both of which require monthly payments at the end of each months for 4 years starting one month after the car is purchased:

(i) 12% nominal annual interest rate compounded monthly for the 4 years;

(ii) a cash back of $1, 000 and 15% nominal annual interest rate compounded monthly for the 4 years.

Assuming the $1, 000 cash back is used to reduce the amount of the loan, which offer is more attractive to the purchaser by comparing their respective monthly payment?

Q4. A home buyer borrow $350, 000 to be repaid over a 25-year period with level monthly payments beginning one month after the mortgage is taken. The interest rate on this mortgage is a nominal annual rate of 5% compounded semiannually.

(a) Find the monthly payment.

(b) The mortgage is renegotiated after the first 5-year term. Suppose that the new nominal annual rate compounded semiannually for the second 5-year term is 4%. Find the monthly payment during the second 5-year term.

Reference no: EM132796125

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