PLEASE ANSWER ALL PART 2(s) of the given questions:

You're about to buy a new car for $10,000. The dealer offers you a one-year loan where you pay $894.11 every month for the next 12 months. Since you pay $894.11 * 12 = $10,729 in total, the dealer claims that the loan's annual interest rate is (10,729-10,000)/10,000 = 7.29%. Part 1 18 Attempt 1/10 for 10 pts. What is the actual effective annual rate? 14.03% Correct The monthly payments make up an annuity. Since we cannot solve for the discount rate of an annuity analytically, we need to use trial and error, a financial calculator or Excel's RATE() function to find the monthly rate: Using a financial calculator: NI/Y PV PMT FV 12 - 10,000 894.11 0 Inputs Compute 1.1 Using Excel (don't enter the thousands separators): = RATE(nper, pmt, pv) = RATE(12, -894.11, 10,000) = 0.011 (if you get 0, display more decimal places) The last step is to express the monthly rate as an effective annual rate: EAR = 1.01112 - 1 = 0.1403 The EAR is much higher than the quoted rate due to the time value of money: the EAR would only be 7.29% if there were only one payment at the end of the year, rather than 12 equal payments throughout the year. Given the monthly payments, the effective annual rate is 14.03%, or 0.1403. 18 Attempt 1/10 for 10 pts. Part 2 What rate should the dealer quote by law? Problem 24 Intro The quoted interest rate is 4.5% (APR with quarterly compounding). Part 1 - Attempt 2/10 for 10 pts. What is the quarterly rate? 1.1250% Correct 0.045 APR Tw= 4 = 0.01125 8 Attempt 2/10 for 10 pts. Part 2 What is the effective annual rate (EAR)? 4+ decimals Submit Show all parts Problem 23 > Intro Bank of America quotes a rate of 11.9% with monthly compounding for a consumer loan, while Wells Fargo quotes you 12% with annual compounding. Part 1 Attempt 1/10 for 10 pts. What is the EAR for Bank of America? 12.57% Correct 12 12 EARBoA = = (1 + APRE-A)" 1 = (1 + 0.120) 1+ 1 - 1 = 0.1257 12 Part 2 Attempt 7/10 for 10 pts. What is the EAR for Wells Fargo? 3+ decimals Submit