PLEASE HELP! I DO NOT UNDERSTAND Q$1$ & Q$2!$ QUESTION $1$

Your credit union offers a $48-$month term auto loan with a $6\mathrm{.}29\%$ APR. Based on your budget, you can only afford a $$400$ per month

payment. What would be the maximum value that you could pay for a car?

$$6,019\mathrm{.}07$

$$16,936\mathrm{.}08$

$$19,200$

Auto loans have become so expensive that I would prefer to use public transportation. It saves money and helps the environment.

QUESTION $2$

Your bank offers you the following credit card transfer office: $7\mathrm{.}99\%$ APR with daily compounding. You check your local credit union, and

they currently have a promotion on a personal loan at $8\%$ with monthly compounding. Which is the best offer?

Refresher on interest rates equivalency: sometimes lenders will quote APRs with different compounding periods, which makes

comparison of interest rates hard $($as in this problem$).$

Nominal interest rate $($APR or annual percentage rate$)$ is the yearly rate charged on a loan or paid on a deposit account and

does not consider compounding.

Effective annual rate $($EAR or APY$)$ is the true annual rate of a loan or deposit when compounding of interest is considered.

APR is simpler to calculate, while EAR provides a more accurate representation of interest costs. EAR is useful for comparing loans

that compound interest more frequently than once a year. APR will always be lower than EAR if compounding occurs more than

annually. Lenders are required to disclose APR but not EAR. However, EAR better conveys the true cost or yield.

Formula: EAR$=(1+AP\frac{R}{12}{)}^{{?}^{{?}^{?}}}12-1.$ I find it easier to use the Excel function: $=$EFFECT. If you are given the EAR and want to convert

to an APR, use $=$NOMINAL. The 'npery' input in the EFFECT and NOMINAL Excel functions refer to the number of compounding

periods per year $($how often interest is added to the principal$)$: $1$ for annual compounding; $2$ for semiannual compounding; $4$ for

quarterly compounding; $12$ for monthly compounding; $365$ for daily compounding.

Bank since the APR of $7\mathrm{.}99\%$ is lower than the APR of the credit union of $8\%.$

Bank since the EAR of $7\mathrm{.}99\%$ is lower than the EAR of the credit union of $8\%.$

Credit union since the EAR of $8\mathrm{.}30\%$ is lower than the EAR of the bank of $8\mathrm{.}32\%.$

Bank since the APR of $7\mathrm{.}99\%$ is lower than the EAR of the credit union of $8\mathrm{.}30\%.$