Question

1.Master Card must by law print the Annual Percentage Rate (APR) on their monthly statements. If the APR is stated to be 9.00%, with interest paid monthly, what is the card's effective annual rate (EAR)? (enter your answer as a percentage with two decimal points i.e. 15.33 –don’t include the % symbol)

2.Kyle wants to have $26,000 in an investment account 4 years from now. The account will pay 0.2 percent interest per month. If he saves money every month, starting one month from now, how much will he have to save each month to reach his goal? (enter your answer as a number with two decimals i.e. 41.25)

Answer 1

Ans:- 1 Effective Interest or annual rate = (1+r/m)^m-1, where r is the annual rate, m is the number of times compounding.

EAR = (1+9%/12)^12-1=9.38.

Therefore, the effective annual rate is 9.38.

2 we will use the PMT function of excel to find the monthly deposit.

Rate=0.2%, Nper=4*12=48, PV=0, FV=-$26,000

Therefore, the monthly deposit should be $512.62.

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