Question

Ch 05: Blueprint Problems - Time Value of Money Am Keep the Highest 16 6. Time Value of Money Comparing Interest Rates Different compounding periods are ved for ferentes of investments. In order t o come investments or swi tcompounding periods, we need to put them on a common basis. In order to do this, you need to understand the difference between the nominal interest rate (NO) and the effective anal rate (EAR). The interest rate is quoted by borrowers and lenders, and it is also called the annual percentage rate (APR) the compounding periods for different source is the same, then you use the APR for com the series have ferent counding , then the must be for comparison compounding the theor e t o unding area als Quantitative Problem Bank 1 landsfundataminale of with payment to be madem quarterly. If bank would to the same effective annual teas Bank 1. what round in actions Round you to the demais y , Bank resments to be made arest rate wil they charge their customers en WE YU WERINDOOP SDFGHJK 7x carne mand command option

Answer 1

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? v L 1 ENG 06:42 01-03-2020 22 AF191 AF AG AH AI AS a - XVfx r Z AA AB AC AD Æ BLANKS 1 NOMINAL INTEREST 2 EFFECTIVE ANNUAL RATE 3 NOMINAL INTEREST RATE QUOTED BY BORROWERS AND LENDERS 4 ALSO CALLED ANNUAL PERCENTAGE RATE 5 NOMINAL INTEREST RATE USE THE APR FOR COMPARISON 6 EFFECTIVE ANNUAL RATE MUST BE USED FOR COMPARISON NOMINAL RATE IS EQUAL TO EAR 1 ANNUAL COMPOUNDING THEN 2 EAR IS GREATER THAN NOMINAL RATE 179 180 BANK 1 BANK 2 7% SEMI ANNUAL QUARTERLY BANK 1 EAR = (1+(0.07/2))^2-1 = 7.122500% BANK 2 EAR = (1+r/4))^4 - 1 = (1+r/4))^4 = (1+(r/4)) = r/4 = 188 189 190 191 7.122500% 1.0712250 1.0173495 (1.0712250^(1/4)] 0.0173495 0.06939799 6.94% BANK 2 APR = ... loan with points LOCK BOX DILUTION DOLLAR COST AVG EXPO NPER APR CPI ear FVA S2 pva 3 STATE 56 57 58 59 54 MORTGAGE ... :