What is the effective annual rate of interest

Reference no: EM13997866

USE the factors to express all patterns of flow in your equations. SHOW ALL YOUR WORK. Write clearly and indicate your solution. Attach your solutions to this page in order.

1. A local store has charge accounts for regular customers. They bill monthly and charge 1.75% per month on the unpaid balance in any account.

a. What is the APR they are charging?

b. What is the effective annual rate of interest?

2. The following table shows the amount borrowed and the partial payment schedule to repay the loan. The last payment shown as B is sometimes called a baloon payment. Write the equation to solve for B using the factors to express the solution. Your answer will be in the form B = .

period	amount
0	500
1	-50
2	-100
3	-150
4	-200
5	-B

3. The following cash flow diagram shows the plan to spend development money, amount D. over 4 periods and then begin to receive revenue during the following 4 periods.

1071_Cash flow diagram.jpg

Using the factors, write the equation for present worth that will determine how much development money. D, can be spent each period and have PW(0) = 0 if i = .06 for the 8 periods?

4. Given: PW(0) = -7500 + 200(P/A, .06, 10) + 300(P/A, g = .04, .06, 8) + 750(P/F, .06, 9).

a. Draw the cash flow diagram

b. Compute the value of PW(0).

Reference no: EM13997866

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