CHAPTER 6-3

# CHAPTER 6-3 - FV in 10 years = \$4,500[1.093/365]10(365 =...

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FV in 10 years = \$4,500[1 + (.093/365)] 10(365) = \$11,403.94 FV in 20 years = \$4,500[1 + (.093/365)] 20(365) = \$28,899.97 18. For this problem, we simply need to find the PV of a lump sum using the equation: PV = FV / (1 + r) t It is important to note that compounding occurs daily. To account for this, we will divide the interest rate by 365 (the number of days in a year, ignoring leap year), and multiply the number of periods by 365. Doing so, we get: PV = \$58,000 / [(1 + .10/365) 7(365) ] = \$28,804.71 19. The APR is simply the interest rate per period times the number of periods in a year. In this case, the interest rate is 30 percent per month, and there are 12 months in a year, so we get: APR = 12(30%) = 360% To find the EAR, we use the EAR formula: EAR = [1 + (APR / m )] m – 1 EAR = (1 + .30) 12 – 1 = 2,229.81% Notice that we didn’t need to divide the APR by the number of compounding periods per year. We do this division to
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