FIN 3312_Exam3REVIEW - Copy.pdf

# FIN 3312_Exam3REVIEW - Copy.pdf - Review for 3rd Exam Time...

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Review for 3 rd Exam Time Value of Money: Chapters 4 and 5 PV, FV, Annuities o Non-annual periods o Finding I/Y and N APR vs. EAR o APR: Annual Percentage Rate APR = (rate per period) x (# of compounding period per year) Basically same as we compute i: annual rate divided by number of periods per year Generally used in loans Interest amount each period is periodic rate x loan balance o EAR: Effective Annual Rate EAR = [1 + (Annual Rate/M] 𝑀 - 1 Includes compounding effect within the year Where M = # of compounding periods per year Used for comparing differing compounding frequency Effects on PV and FV of changing rates, time, etc.
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