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# A store will give you a 1.25% discount on the cost of your purchase if you pay cash today. Otherwise, you will be billed the full price with payment...

1. A store will give you a 1.25% discount on the cost of your purchase if you pay cash today. Otherwise, you will be billed the full price with payment due in 1 month. What is the implicit borrowing rate being paid by customers who choose to defer payment for the month? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

 Effective annual rate %

2. You take out a 20-year \$300,000 mortgage loan with an APR of 12% and monthly payments. In 10 years you decide to sell your house and pay off the mortgage. What is the principal balance on the loan? (Round the monthly loan payment to 2 decimal places when computing the answer. Round your answer to 2 decimal places.)

 Principal balance on the loan \$  3.

3. Home loans typically involve "points," which are fees charged by the lender. Each point charged means that the borrower must pay 1% of the loan amount as a fee. For example, if the loan is for \$190,000 and 3 points are charged, the loan repayment schedule is calculated on a \$190,000 loan but the net amount the borrower receives is only \$184,300. Assume the interest rate is 1.25% per month. What is the effective annual interest rate charged on such a loan, assuming loan repayment occurs over 132 months? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Use a financial calculator or Excel.)

 Effective annual interest rate %

4.

 a. How much will \$100 grow to if invested at a continuously compounded interest rate of 12.25% for 8 years? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 Future value \$

 b. What if it is invested for 12.25 years at 8%? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 Future value \$

Here is a detailed explanation... View the full answer

nper 132
rate
0.0125
pv \$190,000.00
pmt PMT(0.0125,168,-190000)
\$2,711.38 168
\$22,711.38
pv \$184,300.00
rate
1.00983% nper pmt Effective annual interest rate =
(1+0.0100983)^12 - 1 0.128142 1281%

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