What is the highest apr you can afford on 60-month loan

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1. You want to borrow $60,000 from your local bank. You can afford to make monthly payments of $1,200, but no more. Assuming monthly compounding, what is the highest APR you can afford on a 60-month loan?

2. Suppose you expect the rate of inflation to be 4% next year, then fall to 3% for the following year, and then to fall to 2% for each of the following years. Suppose r* is to remain constant at 2% and the maturity risk premium is 0 for the 1st year, .10% for the 2nd year, and will increase by .10% for each following year, up to a limit of 1.0%. Calculate the interest rate (r) on the following term bonds:

a. 1 year

b. 5 year

c. 10 year

d. 15 year

e. 20 year

Reference no: EM131828951

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