Question

# Please answer all parts of problem :) a) You borrowed \$3,000 with "Add-on Interest" at 9%...

a) You borrowed \$3,000 with "Add-on Interest" at 9% with 12 equal monthly payments to payoff the loan. What is the actual interest rate the lender is charging you in this deal.

9%

13.51%

12.48%

10.15%

16.22%

b) XYZ Inc entered in a 4 year contract with a client. XYZ will receive following cash flows at the end of each year. If they can earn 6% annual interest, what is the future value of this contract?

0                  1 2 3 4

|------------|--------------|---------------|----------------|

0              \$800 \$1,500          \$3,800 \$420

\$7,086.21

7,232.87

\$6,911.20

\$4,521.34

\$5,612.94

c) Bank A is offering a loan of \$4,000 at 8% interest rate compounded monthly while Bank B is offering \$4,000 loan at 7.98% interest rate compounded daily. Which bank should you take the loan from?

Bank B as it has a lower effective rate of 8.51%

Bank B as it has a lower effective rte of 8.306099%

Both banks have same effective rate so it does not matter which bank you borrow from

Bank A since it has a lower effective rate of 8.299951%

Bank A as the effective rate is lower at 8.51%

d) Jake bought an old car from the used car dealer “reliable autos Inc.” for a price of \$8,000. Jake paid \$2,000 down payment and financed the remaining amount with loan for seven years and monthly payments of \$158.04 at the end of each month. what is the rate of this financing (APR)?

2.22%

17.39%

15.69%

13.59%

26.59%

1)

Hence, Actual rate charged is 16.22% (1.351%*12)

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