Question: 1. Will the effective annual rate ever be equal to the simple (quoted) rate? Explain. 2. A). You are about to buy a home; the

1. Will the effective annual rate ever be equal to the simple (quoted) rate? Explain.

2. A). You are about to buy a home; the purchase price of the property is $260,000 and you are paying 15% of that amount as a down payment and financing the remainder. Your mortgage loan terms are 30 years of monthly payments at an annual rate of 3.85%. How much are your monthly mortgage payments?

N=

I/Y=

PV=

PMT=

FV=

B). Over the life of the loan, how much did you pay in interest?

C). Now lets say that you took out this loan 4 years ago (48 payments). Today, you see that you qualify for a loan refinance at an APR of 3.36%. You decide to go for it. Considering the 4 years of payments you have made; how much do you still owe on your home?

3. A). Assume that you want to buy a new car and the interest rate you are offered is 5.6% APR, with monthly payments for 5 years. You can afford a payment of $525 per month. What is the greatest amount you can borrow?

(b) Now let's assume that you decide that $525 per month is more than you want to spend. In order to buy that same car (answer to part a), if you take your loan out over 7 years, how much more will you be paying in interest over the life of the loan compared to the previous loan (part a)? Hint, you need to first calculate the alternate payment, then your answer to this question is how much more in interest do you pay over the life of the 7-year loan over the 5-year loan for the same value of car, with financing at the same interest rate?

4 a) Suppose on January 1 you deposit $14,000 in a savings account that pays a quoted interest rate of 1.42% (APR), with interest added (compounded) daily. How much will you have in your account on September 1, or after 8 months? (assume N = 243 days) Recall that the interest rate (I/Y) represents the periodic rate based on how many times per YEAR the interest is compounded, hint, this is 365 times per year.

b) Now suppose you leave your money in the bank for 20 months. Thus, on January 1 you deposit $14,000 in an account that pays a 1.42% compounded daily. How much will be in your account on September 1 the next year? (assume N = 608 days). Do no interim rounding on the interest rate

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