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EAR=[1+mAPR]m1FV=iV(1+r/m)m/PV=FV1I(1+r/m)mt m= compounding frequency, t= number of years, r=APR or stated rate Calculator: N=(mt),1/Y=APR/m PART 1: INTEREST RATES 1. (1pt) A loan is charging 4%

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EAR=[1+mAPR]m1FV=iV(1+r/m)m/PV=FV1I(1+r/m)mt m= compounding frequency, t= number of years, r=APR or stated rate Calculator: N=(mt),1/Y=APR/m PART 1: INTEREST RATES 1. (1pt) A loan is charging 4% APR compounded monthly with payments at the beginning of the period: a. Annuity due or ordinary annuity? b. How many payments would you make in 1 year? c. What is the effective period interest rate? d. What is the effective annual interest rate? 2. (1pt) You are offered the choice between the following savings vehicles. Which would you choose? a. CD paying 4% APR compounded monthly b. Money market paying 4% APR compounded semi-annually c. CD paying 5% APR compounded monthly d. Money market paying 5\% APR compounded annwally 3. (1pt) which compounding frequency makes the EAR=APR ? 2. Monthly a. Annual b. Weekly c. They will never be the same 4. (1pt) In a problem solving for the PV of an annuity that has a 6%APR with monthly compounding for 6 years, how many periods, or N, would be used? PART 2: ANNUITIES 5. (1pt) You are considering investing in an annuity vehicle that pays $500 every 6 months at the end of the month for the next 10 years. Using 6% APR compounded semi-annually what would you be willing to pay for this today? 6. (1pt) PV ANNUITY. You can afford $3,500 each month for mortgage payments. If the bank is charging 3.5\% APR compounded monthly for a 30 year fixed rate loan, how much can you borrow for your house? Note: mortgages are an ordinary annuity. 7. (1pt) PV ANNUITY. If the mortgage in the problem above was an annuity due, how much could you borrow for your house? 8. (1PT) PV ANNUITY. You just won the Florida Lottery! You are given two options on how to receive your payout. You believe that a 5% annual return is appropriate. Which option would you choose. Show your work. OPTION 1: $450,000,000 paid in even installments of $15,000,000 at the end of every year. OPTION 2: $281,874,999 paid in cash today

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