To borrow $1,000, you must pay back twelve monthly installments of $100. a. It cost you $200 to borrow $1,000 for a year. Why is your yearly interest rate not equal to 200=1,000 20%? b. What is the present value of the income stream 1,000, 100, 100, ... , 100 if the monthly interest rate is m? Find the approximate monthly interest rate m you are paying by determining the value of m that makes this present value equal to zero. c. What yearly interest rate corresponds to the monthly interest rate?

Answer rating: 100% (QA)

a The yearly interest rate is not equal to 2001000 20 because the interest is compounded mon... View the full answer