Question

airements 1 In cell D11, by using cell references, calculate the monthly interest rate of the current credit card (1 pt.). 2 In cell D12, by using cell references, calculate the interest payment on the current credit card (1 pt). Note: The output of the expression or function you typed in this cell is expected as a positive number. 3 In cell D13, by using cell references, calculate the monthly interest rate of the new credit card (1 pt.) 4 In cell D14, by using cell references, calculate the present value of the interest payments (1 pt.). Notes: (1) The output of the expression you typed in this cell is expected as a positive number. (2) Use the Present Value of a Perpetuity equation from chapter 4 5 In cell D15, by using cell references, calculate the additional borrowing that you can make by switching to the new credit card (1 pt.) Problem 5-4 You are considering two ways of financing a spring break vacation. You could put it on your credit card, at 15% APR, compounded monthly, or borrow the money from your parents, who want an 8 % interest payment every six months. Which is the lower rate? Complete the steps below using cell references to given data or previous calculations. In some cases, a simple cell reference is all you need To copy/paste a formula across a row or down a column, an absolute cell reference or a mixed cell reference may be preferred. If a specific Excel function is to be used the directions will specify the use of that function. Do not type in numerical data into a cell or function. Instead, make a reference to the cell in which the data is found. Make your computations only in the blue cells highlighted below In all cases, unless otherwise directed, use the earliest appearance of the data in your formulas, usually the Given Data section Credit card APR 15% Compounding period Six-month rate 12 8% Compounding period 2 EAR credit card EAR parents Which is lower? uirements 1 In cell D11, by using cell references, calculate the EAR corresponding to borrowing on your credit card (1 pt.). 2 In cell D12, by using cell references, calculate the EAR corresponding to borrowing from your parents. Note: Notice that the rate in cell D8 is NOT expressed as an APR (1 pt.) 3 In cell D15, type either credit card or parents depending on which EAR is the lowest (1 pt.)

Answer 1

Problem 5.4)

15% 896 44 Credit card APR 45 Compounding period 46 Six-month rate 47 Compounding period 48 49 EAR credit card 50 EAR parents 51 Which is lower? 16.08% 8.16% Parents

Formulas:

44 Credit card APR 45 Compounding period 46 Six-month rate 47 Compounding period 48 0.15 12 0.08 2 50 EAR parents 51 which is lower? =((1+C44/C45)^C45)-1 =((1+C46/C47)^2)-1 =IF(C49<C50,"Credit card","Parents")