Problem 1) Your savings account offers monthly compounding. If your money doubles in 5 years what is the EAR and APR on the account?
Problem 2) The Jet Co. has an $80,000 line of credit with a 12% interest rate and a 10% compensating balance requirement which is based on the total amount borrowed. What is the effective annual interest rate if the firm needs $45,000 of cash for one year?
Problem 3) You are saving for your retirement in 20 years. You hope to have an annual income of $80,000 per year (at the beginning of each year). At retirement you will have a life expectancy of 25 years and when you die you plan to leave $100,000 to your Community Foundation Fund. Upon retirement, all of your funds will earn a 7% EAR.
You have a defined contribution retirement plan in which your employer invests $1,000 per month. The account pays a 9% APR with monthly compounding. The balance of your retirement savings will come from your annual (end of year) contributions into an investment account that pays an 11% EAR.
How much money do you need when you retire in 30 years?
How much do you need to set aside each year to meet your retirement goal?