My question is Q 67- calculating EAR with Add-on interest (it carries on to another page). Thank you!

os tested that it will be five years before the plaintiff is able to return to work. jury has already decided in favor of the plaintiff. You are the foreperson of the and propose that the jury give the plaintiff an award to cover the following: (a) present value of two years back pay. The plaintiff's annual salary for the last years would have been $43.000 and $46,000, respectively. (b) The present value five years' future salary. You assume the salary will be $51,000 per year. (c) $150,00 for pain and suffering. (d) $20,000 for court costs. Assume that the salary payme are equal amounts paid at the end of each month. If the interest rate you choose 8 percent BAR, what is the size of the settlement? If you were the plaintiff, would you like to see a higher or lower interest rate? Calculating EAR with Points [LO4] You are looking at a one-year loan of $10.000. The interest rate is quoted as 8 percent plus two points. A point on a loan is simply I percent (one percentage point) of the loan amount. Quotes similar to this one are common with home mortgages. The interest rate quotation in this example is the borrower to pay 2 points to the lender up front and repay the loan later picant interest. What rate would you actually be paying here? EAR with Points LO4] The interest rate on a one-year loan is quoted rent plus 3 points (see the previous problem). What is the EAR? Is You afected by the loan amount? im Interest Rates (LO2) You are buying a house and will borrow on a 30-year fixed rate mortgage with monthly payments to finance the rease. Your loan officer has offered you a mortgage with an APR of 4 percent Alternatively, she tells you that you can buy down the interest rate to 3.75 percent if you pay points up front on the loan. A point on a loan is I percent (one percentage point) of the loan value. How many points, at most, would you be willing to pay to buy down the interest rate? 65. Calculating Interest Rates (LO2] In the previous problem, suppose that you be lieve that you will only live in the house for eight years before selling the house and buying another house. This means that in eight years, you will pay off the remaining balance of the original mortgage. What is the maximum number of points that you would be willing to pay now? 66. EAR versus APR (LO4) Two banks in the area offer 30-year, $230,000 mortgages at 4.8 percent and charge a $3,900 loan application fee. However, the application fee charged by Insecurity Bank and Trust is refundable if the loan application is denied whereas that charged by I.M. Greedy and Sons Mortgage Bank is not. The current disclosure law requires that any fees that will be refunded if the applicant is rejected be included in calculating the APR, but this is not required with nonrefundable fees (presumably because refundable fees are part of the loan rather than a fee). What are the EARs on these two loans? What are the APRs? Calculating EAR with Add-On Interest (LO4] This problem illustrates a decep- tive way of quoting interest rates called add-on interest. Imagine that you see an advertisement for Crazy Judy's Stereo City that reads something like this: "S1.000 Instant Credit! 16.5% Simple Interest! Three Years to Pay! Low, Low Monthly Pay ments!" You're not exactly sure what all this means and somebody has spilled ink over the APR on the loan contract, so you ask the manager for clarification. Judy explains that if you borrow $1,000 for three years at 16.5 percent interest, in three years you will owe: $1.000 x 1.165) = $1,000 X 1.58117 = $1,581.17 Chapter 6 Discounted Cash Flow Valuation Now, Judy recognizes that coming up with $1,581.17 all at once might be a strain. so she lets you make "low, low monthly payments" of $1,581.17/36 = $43.92 per month, even though this is extra bookkeeping work for her. Is the interest rate on this loan 16.5 percent? Why or why not? What is the APR on this loan? What is the EAR? Why do you think this is called add-on interest? 68. Calculating Annuity Payments [LO1] This is a classic retirement problem. A time line will help in solving it. Your friend is celebrating her 35th birthday today and wants to start saving for her anticipated retirement at age 65. She wants to be able to withdraw $105,000 from her savings account on each birthday for 20 years following her retirement, the first withdrawal will be on her 66th birthday. Your friend intends to invest her money in the local credit union, which offers 7 percent interest per year. She wants to make equal annual payments on each birthday into the account estab- lished at the credit union for her retirement fund. a. If she starts making these deposits on her 36th birthday and continues to make deposits until she is 65 (the last deposit will be on her 65th birthday), what amount must she deposit annually to be able to make the desired withdrawals at retirement? b. Suppose your friend has just inherited a large sum of money. Rather than mak- ing equal annual payments, she has decided to make one lump sum payment on her 35th birthday to cover her retirement needs. What amount does she have to deposit? c. Suppose your friend's employer will contribute $3,500 to the account every year as part of the company's profit-sharing plan. In addition, your friend expects a $175,000 distribution from a family trust fund on her 55th birthday, which she will also put into the retirement account. What amount must she deposit annually now to be able to make the desired withdrawals at retirement? %. Calculating the Number of Periods (LOZ) Your Christmas ski vacation was great, but it unfortunately ran a bit over budget. All is not lost: You just received an offer in the mail to transfer your $12,000 balance from your current credit card, which charges an annual rate of 18.6 percent, to a new credit card charging a rate of 9.2 per- cent. How much faster could you pay the loan off by making your planned monthly payments of $225 with the new card? What if there was a 2 percent fee charged on any balances transferred? Future Value and Multiple Cash Flows (LO1 An insurance company is offer- "s a new policy to its customers. Typically, the policy is bought by a parent or Brandparent for a child at the child's birth. The details of the policy are as follows: Purchaser (say, the parent) makes the following six payments to the insurance 70. Future Value and comman