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Hi, as you can see in the picture in part C the question ask me to find the rate for the monthly payments. I understand

Hi, as you can see in the picture in part C the question ask me to find the rate for the monthly payments.

I understand I have to convert from APR to the EAR to EPR.

APR is 23% with daily compounding. m=365.

this gives me an EAR of 25.8508846 %

However, from EAR to EPR because they are asking me for MONTHLY payments I used m=12, I don't understand why to use m= 365 when they are asking for monthly payments.

EAT to EPR.1+ 0.258508846 ^ 1/12-1 = 0.002129

Why use 365 for monthly payments? wouldn't that give us a daily rate instead of monthly?

image text in transcribed
Your friends are going to Puerto Vallarta, Mexico, over Reading Week and you want to go too. Unfortunately, you haven't been good at saving, so you need to borrow $2500 to pay for the trip. You can finance the trip on your credit card at a rate of 23% APR with daily compounding. Alternatively, your parents (who are both bankers) are willing to lend you the money at a rate of 11% per six months compounded every six months. a. What is the EAR of borrowing with your credit card? (Assume 365 days in a year.) b. What is the EAR of borrowing from your parents? c. If you plan to repay the $2500 in equal monthly instalments, what would be the rates to use in the following annuity formulas to calculate your monthly payments. i. Assume you borrowed with the credit card. ii. Assume you borrowed from your parents. PV(annuity of C for n periods with interest rate r) = Cx or PV(growing perpetuity) = C (1 + r)n r-g c. The annual percentage rate, APR, is the effective interest rate per compounding periods multiplied by the number of compounding periods per year. The effective interest rate per compounding period, r, can be found by using the formula show below, where m is the number of compounding periods per year. APR m i. Assuming you borrowed with the credit card, the values of APR and m for part i are the same as in part a. Calculate the value of /when APR = 0.23 and m = 365. = 0.00063 (Round to six decimal places.) Enter your answer in the answer box and then click Check

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