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2/10/2015
Semiannually
Quarterly
Monthly
Weekly
Daily
2/10/2015
Example:
18% compounded
monthly
Formula:
Solution:
Suppose your savings
account pays 9% interest
compounded quarterly.
quarterly.
a.
Interest rate per
quarter
b. Annual effective
interest rate (ia)
c.
If you deposit
$10,000 for one
year, how much
would you have?
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A loan shark lends money on the following terms :If I give you
50$ on Monday, you owe me $60 on the following Monday.
(a) What nominal interest rate per year (r) is the loan shark
charging
(b) What effective interest rate per year (ia) is he charging?
(c) If the loan shark started with $50 and was able to keep it, as
well as all the money he received, out in loans at all times, how
much money would he have at the end of one year?
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1st Qtr
2nd Qtr
3rd Qtr
4th Qtr
1% 1% 1%
3.030 %
One-year
Effective interest rate per quarter
Effective annual interest rate
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Formula: With
continuous
compounding
Example:
Example: 12% compounded
continuously
11
2/10/2015
Given:
Invoice Price = $21,599
Sales tax at 4% = $21,599
(0.04) = $863.96
Dealers freight = $21,599
(0.01) = $215.99
Total purchase price =
$22,678.95
Down payment = $2,678.95
Dealers interest rate =
8.5% APR
Length of financing = 48
months
Find: the monthly payment (A)
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$20,000
1
48
A
Given: P = $20,000, r = 8.5% per year
K = 12 payments per year
N = 48 payment periods
Find A:
Step 1: M = 12
Step 2: i = r/M = 8.5%/12 = 0.7083% per month
Step 3: N = (12)(4) = 48 months
Step 4: A = $20,000(A/P, 0.7083%,48) = $492.97
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1-
2
34-
A series of equal
quarterly payments of
$5,000 for 10 years is
equivalent to what
present amount at an
interest rate of 9%
compounded
(a) quarterly
(b) monthly
(c) continuously
A = $5,000
0
12
40
Quarters
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A = $5,000
Payment period :
Quarterly
Interest Period:
Quarterly
40
12
A = $5,000
0
1 2
Payment period :
Quarterly
Interest Period:
Monthly
40
10
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A = $5,000
0
1 2
Payment period :
Quarterly
Interest Period:
Continuously
40
11