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6. Calculating EAR First National Bank charges 10.3 percent compounded monthly on its business percent compounded semiannually. As a potential borrower loans. First United Bank

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6. Calculating EAR First National Bank charges 10.3 percent compounded monthly on its business percent compounded semiannually. As a potential borrower loans. First United Bank charges 10.5 to which bank would you go for a new loan? Hint: You will select a bank that provides you a higher or lower EAR? Note that you are the borrower.] 7. Future Value What is the future value in six ycars of $1,000 invested in an account with an APR 7.5 percent, [Hint Compute EAR and then you can use FV lump sum formula to estimate future value FV = PV*(1 + i), where you plug in your EAR as EAR and then y a. Compounded annually? b. Compounded semiannually? 0.077 =7.730/s 7 7-73 1 :7.76 8. BGNEND Modes An investment offers the following cash flows: $2,000 per year for four years d interest is compounded starting from year 2 to years (annual payment). Assume APR is 8% an annually. You may use BGN or END modes to solve these questions. (Please specify which mode you are in.) $2,000 What is the value of this investment at time t 1 (PV,y? a. b. PV,? d. FV,? e. FV,? An interest is stated as 16% APR compounded quarterly. Find the following effective Interest rates: (a) Effective monthly rate, (b) effective quarterly rate, and (c) effective annual rate. 9

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