Question

12. You have loaned $1,000 to a friend whom you consider a good credit risk at a nominal interest rate at 12% compounded monthly. The loan period is 1 year. You plan to take each monthly installment received from your friend and invest it on the day received in a savings account that pays you interest at the nominal rate of 6% compounded monthly. What nominal interest rate are you receiving on the total return from the loan plus the reinvestment of the monthly repayment installments? All installment transactions occur at the end of each period

Answer 1

louned Amount (x) time (4) 1 lyr Interest Rate (r) = $1000 12 months 12% 12 = 17. - Emolinstallment oc) хү [1 - (1+r5t] 1000 X 1%. [1 - 1.0152) = $88.849. : Total interest from friend $88.849x12 - 1000 $66.185 that Fiv Р P [(1+i)^-1] [ We know Here į 62 - 0.5% T2 n = 12 P p = $88.849 F.V. = 88.849 0.5%. [ (1 +0.5%) "-] $1096.002 cs Scanned with CamScanner

Interest = -13 P XN 10 96.002 88.849x12 $29.814 Total Interest 66.185 +29.814 $ 95.999 Nominal interest rate a5.999 xlop 100D 9.597 9-60% CS Scanned with CamScanner