CASE #5

APR vs EAR

Mary Jo plans to invest some money so that she has $8,000 at the end of three years.

	Option A	Option B	Option C	Option D
APR	5.19%	5.11%	5.20%	5.40%
m/per year	365	12	4	1

How much should she invest today given the choices above?

What is her best choice?

What is the EAR for each account? Support your decision in question 2.

Physical therapy equipment purchase

Your firm needs to buy additional physical therapy equipment that costs $20,000. The equipment manufacturer will give you the equipment now if you will pay $6,000 per year for the next four years. If your firm can borrow money at a 9 percent interest rate, should you pay the manufacturer the $20,000 now or accept the four-year annuity offer of $6,000?