Unit 6: Lesson 2: Assignment 4

You agree to pay $1,200 in 2 weeks for a $1,000 payday loan. What is your EAR assuming that there are 52 weeks in a year?

$11,347.55%

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

$110.47

You agree to pay back $1,100 in 4 weeks for a $1,000 payday loan. Your APR is

$130

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

110.38

If the quoted interest rate is 2% per month (12 months in a year), what is the APR?

24%

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)

The interest rate charged per period multiplied by the number of periods per year is the

annual percentage rate.

The effective annual rate (EAR) takes into account the _____ of interest that occurs within a year.

compounding

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

effective

For a stated positive interest rate, the EAR is always _____ the APR.

equal to or grater than

An interest rate expressed in terms of the interest payment made each period is called a(n)

quoted and stated interest rate

More frequent compounding leads to:

Higher EARs

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

tradition and legislation