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CSecureI https//ng.cengage.com/static/nbyui/index.htm?nbld-841770BnbNodeld 32415047 8 deploymentld MINDTAP Ch 05: End-of-Chapter Problems- Time Value of Money 0 Due Today at 11.59 PM CDT Back to Assignment Attempts: Average: 12. Problem 5.12 (Effective Rate of Interest) eBook Find the interest rates earned on each of the following. Round your answers to the nearest whole number a.You borrow $720 and promise to pay back $756 at the end of 1 year. b. You lend $720 and the borrower promises to pay you $756 at the end of 1 year Yu berow $98,000 and promise to pay back $1,048,534 at the end of 13 years. d. You bahw $16,000 and promise to make payments of $5,001.00 at the end of each year for 5 years. tem(/at iservlet/quizlquiz actionstakeauaiq probGuid RCPLOOA8010100000041944a O Type here to searchExplanation / Answer
Answer a.
Amount borrowed = $720
Amount repaid = $756
Period = 1 year
Interest Rate = (Amount repaid / Amount borrowed) - 1
Interest Rate = ($756 / $720) - 1
Interest Rate = 1.05 - 1
Interest Rate = 0.05 or 5.00%
Answer b.
Amount lent = $720
Amount received = $756
Period = 1 year
Interest Rate = (Amount received / Amount lent) - 1
Interest Rate = ($756 / $720) - 1
Interest Rate = 1.05 - 1
Interest Rate = 0.05 or 5.00%
Answer c.
Amount borrowed = $98,000
Amount repaid after 13 years = $1,048,534
Interest Rate = (Amount repaid / Amount borrowed)^(1/n) - 1
Interest Rate = ($1,048,534 / $98,000)^(1/13) - 1
Interest Rate = 10.69933^(1/13) - 1
Interest Rate = 1.20 - 1
Interest Rate = 0.20 or 20.00%
Answer d.
Amount borrowed = $16,000
Annual Payment = $5,001
Period = 5 years
Let interest rate be i%
$5,001 * PVIFA(i%, 5) = $16,000
Using financial calculator:
N = 5
PV = -16000
FV = 0
PMT = 5001
I = 17.0%
So, interest rate is 17.0%