Question

1. If the periodic rate is 2%, and the interest rate is compounded quarterly, what is the APR?

2. If the APR is 11% with semi-annual compounding, what it the EFF or Effective Annual Rate (EAR)?

3. A lender offers to lend you $250,000. The loan calls for annual payments $25,000 for 20 years. What interest rate is the company charging you?

Answer 1

1)	APR= Periodic rate * periods per year
	APR = 2% * 4 quarter
	=8%
2)
	Effective Annual Rate =(1+r/n)^n -1
	r= rate
	n= number of periods per annuam
	=(1+0.11/2)^2 -1
	=(1+0.055)^2
	=11.30%
3)	Present Value Of An Annuity
	= C*[1-(1+i)^-n]/i]
	Where,
	C= Cash Flow per period
	i = interest rate per period
	n=number of period
	$250000= $25000[ 1-(1+r)^-20 /r]
	10 = [ 1-(1+r)^-20 /r]
	r = 0.07755
	Interest rate = 7.76%