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Monthly Payments on $52,000 Boat Loan

The document is a tutorial on financial concepts, focusing on the effective annual rate (EAR) and its calculations. It includes questions regarding the periodic interest rate, comparisons of different accounts' EARs, and the relationship between APR and EAR. Additionally, it addresses loan payments, nominal and real interest rates, and remaining loan balances.

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Smily Isha
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7 views3 pages

Monthly Payments on $52,000 Boat Loan

The document is a tutorial on financial concepts, focusing on the effective annual rate (EAR) and its calculations. It includes questions regarding the periodic interest rate, comparisons of different accounts' EARs, and the relationship between APR and EAR. Additionally, it addresses loan payments, nominal and real interest rates, and remaining loan balances.

Uploaded by

Smily Isha
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

FIN102 Tutorial 3 Week4

1. What is the effective annual rate (EAR)?


A) It is the interest rate that would earn the same interest with annual compounding.
B) It is the ratio of the number of the annual percentage rate to the number of compounding periods
per year.
C) It is the interest rate for an n-year time interval, where n may be more than one year or less than
or equal to one year (a fraction).
D) It refers to the cash flows from an investment over a one-year period divided by the number of
times that interest is compounded during the year.

2. A bank pays interest semiannually with an EAR of 13%. What is the periodic interest rate
applicable semiannually?
A) 5.04%
B) 7.56%
C) 6.30%
D) 12.60%

3. Which of the following accounts has the highest EAR?


A) one that pays 5.4% every six months
B) one that pays 1.0% per month
C) one that pays 9.6% per year
D) one that pays 2.4% every three months

4. Which of the following is/are TRUE?


I. The EAR can never exceed the APR.
II. The APR can never exceed the EAR.
III. The APR and EAR can never be equal.
A) Only I. is true.
B) Only II. is true.
C) Only II. & III. are true.
D) Only I. & III. are true.

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5. A $52,000 loan is taken out on a boat with the terms 3% APR for 36 months. How much are the
monthly payments on this loan?
A) $1663.45
B) $1814.67
C) $1965.89
D) $1512.22

6. If the current inflation rate is 2.0%, then the nominal rate necessary for you to earn a(n) 7.3% real
interest rate on your investment is closest to .
A) 11.3%
B) 9.5%
C) 13.2%
D) 15.1%

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7. A homeowner has five years of monthly payments of $1500 before she has paid off her house. If
the interest rate is 6% APR, what is the remaining balance on her loan?

8. Can the nominal interest rate ever be negative? Can the real interest rate ever be negative?
Explain.

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