Question

Guzman just borrowed $79,000 to buy a filtrstion system. The terms
of the loan require him to make equal regular quarterly payments
for 8 years plus an extra payment of $ 5,500 in 8 years. His first
regular quarterly payment is due in 3 months. If guzmans regular
quarterly payment is &3,656.12 , then what is the EAR of his
loan.

a 11.16% ( plus or minus .03 percentage points)

b 13.01% ( plus or minus .03 percentage point

c 11.64 % ( plus or minus .03 percentage point

d 10.72 % ( plus or minus .03 percentage point

e none

Answer #1

= C*[1-(1+i)^-n]/i] +final amount/(1+r)^32 | |||||

Where, | |||||

C= Cash Flow per period | |||||

i = interest rate per period | |||||

n=number of period c=8*4 =32 | |||||

79000= $3656.12[ 1-(1+r)^-32 /r] +5500/(1+r)^32 | |||||

79000/3656.12 =[ 1-(1+r)^-32 /r] +5500/(1+r)^32 | |||||

2.16076 =[ 1-(1+r)^-32 /r] +5500/(1+r)^32 | |||||

r = 2.79% | |||||

Effective Annual Rate = (1+0.0279)^ 4 -1 | |||||

=11.64% | |||||

Correct Answer =c 11.64 % ( plus or minus .03 percentage
point |
|||||

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