1. You have seen a credit card advertisement stating that the annual percentage
ID: 2697637 • Letter: 1
Question
- 1. You have seen a credit card advertisement stating that the annual percentage rate is 12 percent. If the credit card requires monthly payments, what is the effective annual rate of interest on the loan?
- 2. Assume you are planning to invest $5,000 each year for six years and will earn 10 percent per year. Determine the future value of this annuity if your first $5,000 is invested at the end of the first year.
- 1. You have seen a credit card advertisement stating that the annual percentage rate is 12 percent. If the credit card requires monthly payments, what is the effective annual rate of interest on the loan?
- 2. Assume you are planning to invest $5,000 each year for six years and will earn 10 percent per year. Determine the future value of this annuity if your first $5,000 is invested at the end of the first year.
Explanation / Answer
1.answer to first question: effective annual rate is 12.68%
Investopedia explains 'Effective Annual Interest Rate'
Consider a stated annual rate of 12%. Compounded yearly, this rate will turn $1000 into $1120. However,
If compound occurs monthly
amount= p (1+ r/100)^n = 1000 (1+1/100)^12 = 1126.8
if compounding occurs monthly,$1000 would grow to $1126.8 by the end of the year, rendering an effective annual interest rate of 12.68%. Basically the effective annual rate is the annual rate of interest that accounts for the effect of compounding.
2. thats a tricky question. $38,578.05
Amount contributed = 5000 *6 =30000
On Compound interest amount accumulated = p (1+ r/100)^n , where p = $5000, r = 10%, n = 6 years
= 5000 * (1+10/100)^6
= 8857.05
Total amount accmulated = 30000+8857.05 = 38,578.05
,
so lets assume the question is 5000, 6 times, with 10 percent interest annually which You can calculate with many online investment calculators and even include the:
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