Calculating Annuity Payments, Perpetuity Present Value, Perpetuity Required Rate and Effective Interest Rate.
1. Calculating Annuity Values Dinero Bank offers you a $30,000, seven-year term loan at 8 percent annual interest. What will your annual loan payment be?
2. Calculating Perpetuity Values The Maybe Pay Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $20,000 per year forever. If the required return on this investment is 8 percent, how much will you pay for the policy?
3. Calculating Perpetuity Values In the previous problem, suppose a sales associate told you the policy costs $280,000. At what interest rate would this be a fair deal?
4. Calculating EAR Find the EAR in each of the following cases
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Stated Rate (APR)
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Number of Times Compounded
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Effective Rate (EAR)
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7%
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Quarterly
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18
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Monthly
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10
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Daily
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14
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Infinite
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