12. Non annual compounding period The number of compounding periods in one year is called compounding frequency. The compounding frequency affects both the present and future values of cash flows. An investor can invest money with a particular bank and earn a stated interest rate of 4.40%; however, interest will be compounded quarterly. What are the nominal (or stated), periodic, and effective interest rates for this investment opportunity? Interest Rates Nominal rate Periodic rate Effective annual rate Dmitri needs a loan and is speaking to several lending agencies about their interest rates and loan terms. He particularly likes his local bank because he is being offered a nominal rate of 4.00%. However, since the bank is compounding its interest daily, the loan will impose an effective interest rate of on his loan. Another bank is also offering favorable terms, so Dmitri decides to take a loan of $11,000 from this bank. He signs the loan contract at 5.20% compounded daily for three months. Based on a 365-day year, what is the total amount that Dmitri owes the bank at the end of the loan's term? (Hint: To calculate the number of days, divide the number of months by 12 and multiply by 365.) O $11,143.45 O $11,533.47 O $11,700.62 O $11,812.06 Attempts: Average: /3 14. Amortized loans An amortization table reports the amount of interest and principal contained within each regularly scheduled payment used to repay an amortized loan. Example Amortization Schedule Payment Interest Repayment of Principal Year Beginning Amount Ending Balance 1 2 3 In completing an amortization schedule, the payments are in amount. The interest payments are calculated as a constant percentage of the loan's outstanding balance. The amount applied to the repayment of principal is over the life of the loan. Your dream is about to come true! You are about to buy your first classic sports car. To do so, you have arranged to borrow $80,000 from your local commercial bank. The interest rate on the loan is 7.00%. To simplify the calculations, assume that you will repay your loan over the next six years by making annual payments at the end of each year. According to the loan officer at the commercial bank, you must answer the following questions before you can go pick up your new car How much is the annual payment on your new car loan? How much of your Year 2 payment will constitute interest on your loan? How much of your Year 3 payment will be used to repay principal on the loan? How much will you pay in total interest to finance the purchase of your $80,000 car