Ch. 5 TVM, Brigham and Houston Questions 5-4 and 5-7 Problems 5-75-8, 5-20, 5-23 QUESTIONS 5-4 Would you rather have a savings account that pays 5% nterest compounded semiannually or one that pays 5% interest compounded daily? Explain 5-7 Banks and other lenders are required to disclose a rate called the APR. What is this rate Why did Congress requre that it be disclosed? ls the same as the effective antual rate? I different lenders, could you use their APRs to determine the loan with the lowest effective interest rate? Explain. f you were comparing the costs of kans from PROBLEMS -8 LOAN AMORIZATION AND EAR You want to buy a car, and a local bark will lend yo $20,000. The loan will be fully amrted over 5 years' 60 months), and the nominal interest rate will be 12% with interest paikd monthly. Calculate the EAR, monthly payment and an amontiation table for the frst month 5-7 PRESENT AND FUTURE VALUES OFA CASH FLOW STREAM An investment will pay S100 at the end of each of the next 3 years, $200 at the end of Year 4, 5300 at the end of Year 5, and S500 at the end of Year 6 If other investments of equal risk earn 8% annually, what is ts present vale? its future value? 5-20 PV OF A CASH FLOW STREAM A rookic quartcrback is negotiating his first NFL contract. His opportunity cost s l 0%. He has been offered three possble 4-year contracts. Payments are guaranteed, and they would be made at the end of each year. Terms of each contract are as tollows Contract 1 Contract 2 Contract 3 $2,000,000 $7,000,000 5L000000$4000000 300,000 5-23 FUTURE VALUE FOR VARIOUS COMPOUNDING PERIODS Find the amount to which $500 will grow under cach of these conditions a. b, c, d, e. 12% compounded annually for 5 years 12% compounded semiannually for 5 years 12% compounded quarterly for 5 years 12% compounded monthly for 5 years 12% compounded daily for 5 years