Problem 6-12: Calculating EAR [LO4]
Find the EAR in each of the following cases. Use 365 days a year. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.
Stated Rate (APR): 8.5%, 17.5%, 13.5%, 10.5%
Number of Times Compounded: Quarterly, Monthly, Daily, Infinite
Effective Rate (EAR): %
Find the APR or stated rate in each of the following cases. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.
Stated Rate (APR): %
Number of Times Compounded: Semiannually, Monthly, Weekly, Infinite
Effective Rate (EAR): 11.0%, 11.9%, 9.6%, 13.3%
First National Bank charges 14.2 percent compounded monthly on its business loans. First United Bank charges 14.5 percent compounded semiannually.
Calculate the EAR for First National Bank and First United Bank. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.
EAR: 1%
First National:
First United:
As a potential borrower, which bank would you go to for a new loan?
First National Bank
First United Bank
Live Forever Life Insurance Co. is selling a perpetuity contract that pays $1,800 monthly. The contract currently sells for $121,000.
a. What is the monthly return on this investment vehicle? (Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
b. What is the APR? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
c. What is the effective annual return? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
a. Monthly return: %
b. APR: %
c. EAR: %