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TVMpracticeset2

# TVMpracticeset2 - TVM Practice Problems II 1 Nineteen years...

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TVM Practice Problems II 1. Nineteen years ago, your grandfather placed \$1,100 in a trust fund for you. The fund is now worth \$13,438. a) What is the fund’s monthly rate of return? b) What is the fund’s rate of return if expressed on a yearly basis? 2. One of your friends has the kind of car that you have always wanted and she is hurting for money! This is your golden opportunity! You can purchase the 1979 Dodge Aries K (this baby is in mint condition) for a mere \$1,900. There is only one problem -- you do not have the money right now. Your solution is to get the money from Jim’s Fast Cash. Jim agrees to lend you the \$1,900 if you agree to repay the loan through 12 monthly payments of \$190, to be paid at the end of each month. As your excitement builds, you ask Jim “what is the interest rate on the loan?” Jim replies, “your total payments are \$2,280 (\$190 * 12) and your loan principal is \$1,900. The interest rate (A.P.R.) you are being charged is therefore \$380 / \$1,900 = 20%.” What is the effective annual rate (E.A.R.) on this loan?

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TVMpracticeset2 - TVM Practice Problems II 1 Nineteen years...

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