QUESTION 15

After examining the various personal loan rates available to you, you find that you can borrow funds from a finance company at 12% compunded monthly or from a bank at 13% compounded annually. What is the Effective Annual Rate (EAR) for the finance company interest rate and which alternative is the most attractive?

a. 12.6825%. The finance company

b. 13.625%. The bank

c. 13%. Both alternatives are the same.

d. Neither is good.

QUESTION 16

You plan to retire in 10 years and buy a house in Florida. The house you are looking at is currently valued at $100,000 and expected to increase in value each year at a rate of 5%. Assuming you earning 10% on your investments, how much must you invest at the end of each of the next 10 years to be able to buy your dream home when you retire?

a.$15,220.56

b.$10,220.56

c. $18,220.56

d. $12,220.56