1. Lets say there is an investment product whose Annual Percentage Rate (APR) is 8%. If this investment product compounds quarterly (that is, four times a year), what will be the Effective Annual Interest Rate (EAR)?

2. Assume Jimmy borrows $550,000 today for a house mortgage, and plans to pay back in full after paying for 20 years. If the interest rate is 10.4% and it will compound semiannually, how much should Jimmy pay each year?

HINT: Remind yourselves of the fact that the value of payment you will obtain either by hand or a financial calculator reflects payment per one period, which may not necessarily reflect what you pay in a year.