Question 6: For each of the following, compute the implied EAR:

1. Bank A pays 7.1% interest on their premium savings account, paid

annually, while Bank B offers 6.9%, but paid monthly. Which is the

better deal?

2. A traditional borrowing scheme stipulates that you can borrow any

multiple of $20, provided you pay back $21 (for each $20 borrowed) one

week later.

3. Last Friday, you borrowed $25 from a friend. Today (Monday), you return

the $25 and buy your friend a drink for $2 as compensation.

4. I recently saw a TV avert from a loan company, in which they gave an

example: if you borrow $120 for 9 days, the cost will be $16.