What is the effective annual rate

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1. Suppose your credit card issuer states that it charges a 11.25% nominal annual rate, but you must make monthly payments, which amounts to monthly compounding. What is the effective annual rate?

2. Suppose you borrowed $15,000 at a rate of 9.0% and must repay it in 4 equal installments at the end of each of the next 4 years. How large would your payments be?

3. You are in negotiations to make a 7-year loan of $23,000 to DeVille Corporation. To repay you, DeVille will pay $2,500 at the end of Year 1, $5,000 at the end of Year 2, and $7,500 at the end of Year 3, plus a fixed but currently unspecified cash flow, X, at the end of each year from Year 4 through Year 7. You are confident the payments will be made, since DeVille is essentially riskless. You regard 8% as an appropriate rate of return on a low risk but illiquid 7-year loan. What cash flow must the investment provide at the end of each of the final 4 years, that is, what is X?

Reference no: EM133074958

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