Question

1. You need $50 immediately and your enterprising 'friend' offers to lend you the money for one week if you pay him an extra $5. $5 doesn't seem like much so you take the loan. a. A: What effective interest rate per week is your friend charging? b. B: What nominal interest rate per year is your friend charging? c. C: What effective interest rate per year is your friend charging? d. D:Do you keep your 'friend' as a friend? 2. If you were to invest $2000 today and in return receive $450 annually for 6 years, what is your annual rate of return? Please also draw the cash flow diagram for this investment.

Answer 1

Solution:

Answer: Given that powe sent Single System - $ 50 Future Single System - $ 55 F T Citija n=0,1.o 10 %/ week. 55 = 60 (1+i)' @ Effective interest per week. = ( 14 ) - 1 = (1794)- = 0.or 10 %) week. roteolest Jate Nominal = 10% / week = 10*52 1 yeare = 520 % / year normal intesiest rate : 5204 / year

peor year 0 Effective interest = (1+ )-1 *(1 + $:2-) 621 = 141.042 = 1H104.2 % year 1 Effebtive Interest = 14904.2% (yecor NO, I will not keep my 'fouend'as a will docend because, oread forciend change such a high inteziest. not

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