18. Unit 6: Lesson 2: LS Assignment 3

Assume $100 earns a stated 10 percent rate compounded quarterly. What will the value of the $100 be after one year?

$110.38 FV = C x (1+r)^m FV= $100 X (1+.10/4)^4= 110.38

If the quoted interest rate is 2% per month (APR = 24%), what is the EAR?

26.82% EAR = ( 1 + rate/m)^m -1 = (1 + .24/12)^12 - 1 = 26.82%

You borrow $100 and agree to pay back your payday loan in 2 weeks for 10% interest over that 2-week period. What is your stated annual interest rate?

260% (52/2)*.10 = 2.6 2.6*100=260%

The interest charged per charged multiplied by the number of periods is called ______

Annual Percentage Rate

Which of the following is the appropriate Excel function to convert a quoted rate of 12% compounded quarterly to an EAR?

EFFECT(0.12,4)

Assume interest is compounded monthly. The ___ annual rate will express this rate as though it were compounded annually

Effective

More frequent compounding leads to:

Higher EARs

An interest rate expressed in terms of the interest payment made each period is called _____

Stated interest rate Quoted interest rate

Because of ___ and ___, interest rates are often quoted in many different ways

tradition; legislation