Question

1.nominal rate of 8% compounded monthly will result into holding period rate of__________ with a holding interval of 2 years

2. If you take out a loan in the amount of 10,000 payable as lump sum with interest in two years your payment in two years will be_____. Suppose that the bank charges 8% APR compounded monthly.

can you show me steps on how to solve this I am confused.

Answer 1

1. 8% compounded monthly with holding interval of 2 years

Return = (1 + 8%/12)^2*12 - 1

Holding period return = 1.1729 - 1 = 0.1729 = 17.29%

2. Future value = 10,000 * CVF_{(8%/12, 2y*12)}

Future value = 10,000 * CVF_(0.67%,24)

Future value = 10,000 * 1.17288 = 11,728.88