1 Lecture 4: Interest rates Tutorial B Questions Your bank is offering you an account that will pay 13% interest in total for a two-year deposit. Determine the equivalent discount rate for a period length of: Six months. a b One year One month 2 a. b. C. 4 13 Which do you prefer: a bank account that pays 6% per year (EAR) for three years or: An account that pays 3% every six months for three years? An account that pays 9% every 18 months for three years? An account that pays 0.6% per month for three years? You have found three investment choices for a one-year deposit: 9% APR compounded monthly, 10% APR compounded annually, and 8% APR compounded daily. Compute the EAR for each investment choice. (Assume that there are 365 days in the year.) Oppenheimer Bank is offering a 30-year mortgage with an EAR of 5.5%. If you plan to borrow $170,000, what will your monthly payment be? You have just sold your house for $1,100,000 in cash. Your mortgage was originally a 30-year mortgage with monthly payments and an initial balance of $750,000. The mortgage is currently exactly 18.5 years old, and you have just made a payment. If the interest rate on the mortgage is 5.25% (APR), how much cash will you have from the sale once you pay off the mortgage? You have just purchased a home and taken out a $460,000 mortgage. The mortgage has a 30-year term with monthly payments and an APR of 6.08%. How much will you pay in interest, and how much will you pay in principal, during the first year? How much will you pay in interest, and how much will you pay in principal, during the 20th year (i.e., between 19 and 20 years from now)? 15 16 a b