1. How much will u r friend pay you each month? 2. How much will you have in you

Question

1. How much will u r friend pay you each month?
2. How much will you have in your account at the end of 36 months (to nearest $)?

3. What is your effective annual return EAR%?

Suppose yo lend $47,500 to n friend at an APR of 9 40%. Your friend will pay you beck og payments you receive in your money market account at an APR of 3.40%, calculated monthly. ing next month wit 36 monthly in in t. You seve the a. How much will your friend pay you each month? b. How much will you have in your account at the end of 36 months? (to nearest S) c, what is your effective annual return (EAR %? Enter your answer in the edit fields and then click Check Answer Cear Al All parts showing X : Outlook Web App e You Are Preparing To Discuss x

Explanation / Answer

1. Amount the friend will pay monthly

Amount the friend will pay monthly = Loan AMount / PVAF (0.7833%, 36)

Amount the friend will pay monthly = $47500 / 31.2634

Amount the friend will pay monthly = $1519.35

2. Account Balance at the end of Month 36

Account Balance at the end of Month 36 = Amount received Monthly * FVAF (0.2833%, 36)

Account Balance at the end of Month 36 = $1519.35 * 37.8437

Account Balance at the end of Month 36 = $57497.63

3. Effect annual Return Rate

EAR = (1 + r/12)^12

EAR = (1 + (9.40+3.40)/12)^12

EAR = 13.58%

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