Expert Solutions

1. Which do you prefer:  or: (Note: be careful not to round any intermediate steps less than six decimal places.)

a bank account that pays 5.2% per year (EAR) for three years
Effective ending Rate after 3 years = (1+.052)^3-1 = 16.42526%

An account that pays 2.3% every six months for three years?
Effective ending Rate after 3 years = (1+.023)^6-1 = 14.61826%

An account that pays 7.4% every18 months for three years?
Effective ending Rate after 3 years = (1+.074)^2-1 = 15.34760%

An account that pays 0.59% per month for three years?
Effective ending Rate after 3 years = (1+.0059)^36-1 = 23.58709%

2. If you deposit $1 into a bank account that pays 5.2% per year for three years, the amount you will receive after three years is $_____. (Round to five decimal places.)

3. An account that pays 2.3% every six months for three years?
If you deposit $1 into a bank account that pays 2.3% every six months for three years, the amount you will receive after three years is $_____. (Round to five decimal places.)

4. An account that pays 7.4% every 18 months for three years?
If you deposit $1 into a bank account that pays 7.4% every 18 months for three years, the amount you will receive after three years is $______ (Round to five decimal places.)

5. An account that pays 0.59% per month for three years?
If you deposit $1 into a bank account that pays 0.59% per month for three years, the amount you will receive after three years is $______ (Round to five decimal places.)

6. Which bank account would you prefer?
5.2% per year for three years
2.3% every six months for three years
7.4% every18 months for three years
0.59% per month for three years

7. You have found three investment choices for a one
year deposit: 9.3% APR compounded monthly, 9.3% APR compounded annually, and 8.5% APR compounded daily. Compute the EAR for each investment choice. (Assume that there are 365 days in the year.) (Note: be careful not to round any intermediate steps less than six decimal places.)

8. You have decided to refinance your mortgage. You plan to borrow whatever is outstanding on your current mortgage. The current monthly payment is $3,120 and you have made every payment on time. The original term of the mortgage was 30 years, and the mortgage is exactly four years and eight months old. You have just made your monthly payment. The mortgage interest rate is 5.750% (APR). How much do you owe on the mortgage today? (Note be careful not to round any intermediate steps less than six decimal places.)
The amount you owe today is $_____. (Round to the nearest dollar.)