Question
1. Bank A charges 12.1% APR on auto loans with monthly compounding. What is the Effective Annual Rate (EAR) ? (In other words, what is
1. Bank A charges 12.1% APR on auto loans with monthly compounding. What is the Effective Annual Rate (EAR) ? (In other words, what is the EAR for a 12.1% APR with monthly compounding?) Answer in % form, with 3 decimals. For example, answer as 17.356 (not 0.17356).
2. What is the PV of $553 per year for 8 years if the required return is 8.5% (assume the $553 payments come at the end of each of the next 8 years)? Answer to 2 decimal places.
3. Your firm is concerned about a financial obligation of $15 million coming due in 5 years. If your firm could earn 6.5% APR on an investment, how much would your firm have to invest today to fund (finance) the future $15 million obligation? (In other words, what is the PV of $15 M due 5 years from now if the interest rate is 6.5%?) Assume annual compounding. Answer in units of millions of dollars and to 2 decimal points.
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