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?
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
This is the end of the preview.
Sign up
to
access the rest of the document.
 Spring '10
 TINDALL
 Time Value Of Money, Net Present Value, Betsy, Indiana Pacers

Click to edit the document details