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What is the effective interest rate per year

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Problem 1 - Your boss has asked you to select a good credit card for the sales team to use. You never want to pay more than 10.7% effective rate per year. The card company offers two variations

a. What would be the APR (Nominal rate per year) if the card compounds every 6 months?

b. What would be the APR (Nominal rate per year) if the card compounds weekly.?

Problem 2 - You need a quick loan and decide to use the local "payday" loan office. The loan is for $800 and you pay it back 13 days later. You end up paying them back $1025. Assume the company compounds interest on a DAILY basis.

a. What is the effective interest rate per year?

b. What would you owe if you kept the money for 1 year?

Problem 3 - You are financing a new home.The loan is for $281,000 and you are getting rate of 3.9% per year compounded monthly. You have decided on a 15 year mortgage and will make monthly payments (end of the month). To get the ball rollng, you are working extra hours and expect to pay an extra $550 per month to knock down the principle. You make these EXTRA payments for 5 years starting on month 1. The last EXTRA payment is on month 60.Build the amortization table.

What month will you make your last payment? How much will the last payment be?

Reference no: EM133160223

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