Annual percentage rate and effective annual interest rate

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Reference no: EM131583564

You expect to receive $3,000 per year over the next 5 years with the first payment expected to begin at the end of the first year.

a. What is the present value of these receivables if the interest rate is 12%?

b. You plan to invest the above money in a bank. You expect to earn 12% interest for the next 10 years. Thereafter, you expect the interest rates to be 10%. What will be the accumulated total at the end of 20 years?

c. Continuing with problem 2(b), what will be the accumulated value at the end of 20 years, if you withdraws $4,000, $5,000 and $6,000 at the end of years 16, 17 and 18, respectively? The interest rates are the same as in 2(b).

d. Explain the difference between APR (Annual Percentage Rate) and the Effective Annual Interest rate (EAR)?

Reference no: EM131583564

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