All Related Questions of Effective Annual Rate

Q: Answer the following questions: a. Assuming a rate of

Answer the following questions: a. Assuming a rate of 10% annually, find the FV of $1,000 after 5 years. b. What is the investment’s FV at rates of 0%, 5%, and 20% after 0, 1, 2, 3,...

Q: You have applied for a job with a local bank. As

You have applied for a job with a local bank. As part of its evaluation process, you must take an examination on time value of money analysis covering the following questions: a. Draw time lines for...

Q: Bruner Aeronautics has perpetual preferred stock outstanding with a par value of

Bruner Aeronautics has perpetual preferred stock outstanding with a par value of $100. The stock pays a quarterly dividend of $2, and its current price is $80. a. What is its nominal annual rate of re...

Q: The Treadwater Bank wants to raise $1 million using three-

The Treadwater Bank wants to raise $1 million using three-month commercial paper. The net proceeds to the bank will be $985,000. What is the effective annual rate of this financing for Treadwater?

Q: Magna Corporation has an issue of commercial paper with a face value

Magna Corporation has an issue of commercial paper with a face value of $1,000,000 and a maturity of six months. Magna received net proceeds of $973,710 when it sold the paper. What is the effective a...

Q: The Needy Corporation borrowed $10,000 from Bank Ease.

The Needy Corporation borrowed $10,000 from Bank Ease. According to the terms of the loan, Needy must pay the bank $400 in interest every three months for the three-year life of the loan, with the pri...

Q: The Signet Corporation has issued four-month commercial paper with a

The Signet Corporation has issued four-month commercial paper with a $6 million face value. The firm netted $5,870,850 on the sale. What effective annual rate is Signet paying for these funds?

Q: The Ohio Valley Steel Corporation has borrowed $5 million for one

The Ohio Valley Steel Corporation has borrowed $5 million for one month at a stated annual rate of 9%, using inventory stored in a field warehouse as collateral. The warehouser charges a $5000 fee, pa...

Q: The Rasputin Brewery is considering using a public warehouse loan as part

The Rasputin Brewery is considering using a public warehouse loan as part of its short-term financing. The firm will require a loan of $500,000. Interest on the loan will be 10% (APR, annual compoundi...

Q: Veggie Burgers, Inc., would like to maintain their cash account

Veggie Burgers, Inc., would like to maintain their cash account at a minimum level of $245,000, but expect the standard deviation in net daily cash flows to be $12,000, the effective annual rate on ma...

Q: HotFoot Shoes would like to maintain their cash account at a minimum

HotFoot Shoes would like to maintain their cash account at a minimum level of $25,000, but expect the standard deviation in net daily cash flows to be $4,000, the effective annual rate on marketable s...

Q: Veggie Burgers, Inc., would like to maintain their cash account

Veggie Burgers, Inc., would like to maintain their cash account at a minimum level of $245,000, but expect the standard deviation in net daily cash flows to be $12,000, the effective annual rate on ma...

Q: A loan is offered with monthly payments and a 10 percent APR

A loan is offered with monthly payments and a 10 percent APR. What’s the loan’s effective annual rate (EAR)?

Q: A loan is offered with monthly payments and a 13 percent APR

A loan is offered with monthly payments and a 13 percent APR. What’s the loan’s effective annual rate (EAR)?

Q: HotFoot Shoes would like to maintain their cash account at a minimum

HotFoot Shoes would like to maintain their cash account at a minimum level of $25,000, but expect the standard deviation in net daily cash flows to be $2,000, the effective annual rate on marketable s...

Q: Company X sells on a 1/30, net 60 basis

Company X sells on a 1/30, net 60 basis. Customer Y buys goods invoiced at $1,000. a. How much can Y deduct from the bill if Y pays on day 30? b. What is the effective annual rate of interest if Y p...

Q: Mary Jones recently obtained an equipment loan from a local bank.

Mary Jones recently obtained an equipment loan from a local bank. The loan is for $15,000 with a nominal interest rate of 11%. However, this is an installment loan, so the bank also charges add-on int...

Q: You want to buy a new sports coupe for $68,

You want to buy a new sports coupe for $68,500, and the finance office at the dealership has quoted you a 6.9 percent APR loan for 60 months to buy the car. What will your monthly payments be? What is...

Q: You are looking at an investment that has an effective annual rate

You are looking at an investment that has an effective annual rate of 17 percent. What is the effective semiannual return? The effective quarterly return? The effective monthly return?

Q: Consider the following options available to a mortgage borrower:

Consider the following options available to a mortgage borrower: What is the effective annual rate for each option?

Q: Looking back at Problem 12, suppose the call money rate is

Looking back at Problem 12, suppose the call money rate is 5 percent and your broker charges you a spread of 1.25 percent over this rate. You hold the stock for six months and sell at a price of $65 p...

Q: You have a car loan with a nominal rate of 5.

You have a car loan with a nominal rate of 5.99 percent. With interest charged monthly, what is the effective annual rate (EAR) on this loan?

Q: A factor has agreed to lend the JVC Corporation working capital on

A factor has agreed to lend the JVC Corporation working capital on the following terms: JVC’s receivables average $100,000 per month and have a 90-day average collection period. (Note that JVC’s credi...

Q: You plan to borrow $20,000 from the bank to

You plan to borrow $20,000 from the bank to pay for inventories for a gift shop you have just opened. The bank offers to lend you the money at 10 percent annual interest for the 6 months the funds wil...

Q: A credit card offers financing at an APR of 18 percent,

A credit card offers financing at an APR of 18 percent, with monthly compounding on outstanding charges. What is the effective annual rate (EAR)?

Q: Why is the effective annual rate (EAR) superior to the

Why is the effective annual rate (EAR) superior to the annual percentage rate (APR) in measuring the true economic cost or return?

Q: Which of the following investments will have the highest future value at

Which of the following investments will have the highest future value at the end of three years? Assume that the effective annual rate for all investments is the same. a. You earn $3,000 at the end of...

Q: When will the annual percentage rate (APR) be the same

When will the annual percentage rate (APR) be the same as the effective annual rate (EAR)?

Q: Up-Front Bank uses discount loans for all its customers who

Up-Front Bank uses discount loans for all its customers who want one-year loans. Currently, the bank is providing one-year discount loans at 8%. What is the effective annual rate on these loans? If yo...

Q: Find the effective annual rate of the following credit terms:

Find the effective annual rate of the following credit terms: a. 2% discount if paid within ten days or net within thirty days b. 1% discount if paid within thirty days or net within sixty days c. 0...

Q: Left Bank has a standing rate of 8% (APR)

Left Bank has a standing rate of 8% (APR) for all bank loans, and requires monthly payments. What is a monthly payment if a loan is for (a) $100,000 for five years, (b) $250,000 for ten years, or (...

Q: You want to buy a new sports coupe for $84,500,

You want to buy a new sports coupe for $84,500, and the finance office at the dealership has quoted you an APR of 5.2 percent for a 60-month loan to buy the car. What will your monthly payments be? Wh...

Q: You are looking at an investment that has an effective

You are looking at an investment that has an effective annual rate of 11.6 percent. What is the effective semiannual return? The effective quarterly return? The effective monthly return?

Q: You are looking at an investment that has an effective

You are looking at an investment that has an effective annual rate of 11.6 percent. What is the effective semiannual return? The effective quarterly return? The effective monthly return?

Q: Determine the monthly rate of interest that will yield an effective annual

Determine the monthly rate of interest that will yield an effective annual rate of interest of 12 percent.

Q: Jimmie is buying a new car. His bank quotes a rate

Jimmie is buying a new car. His bank quotes a rate of 9.5 percent per year for a car loan. Calculate the effective annual rate if the compounding occurs: a. annually b. quarterly c. monthly

Q: Define each of the following terms: a. PV;

Define each of the following terms: a. PV; I; INT; FVN; PVAN; FVAN; PMT; M; INOM b. Opportunity cost rate c. Annuity; lump-sum payment; cash flow; uneven cash flow stream d. Ordinary (or deferred) ann...

Q: Assume that you are nearing graduation and have applied for a job

Assume that you are nearing graduation and have applied for a job with a local bank. The bank’s evaluation process requires you to take an examination that covers several financial a...

Q: Assume that you inherited some money. A friend of yours is

Assume that you inherited some money. A friend of yours is working as an unpaid internata local broker age firm, and her boss is selling securities that call for 4 payments of $50 (1 payment at the en...

Q: Your grandmother asks for your help in choosing a certificate of deposit

Your grandmother asks for your help in choosing a certificate of deposit (CD) from a bank with a one year maturity and a fixed interest rate. The first certificate of deposit, CD #1, pays 4.95 percent...

Q: Payday loans issued by banks are often referred to as direct deposit

Payday loans issued by banks are often referred to as direct deposit advances. In 2016, the average charge was $10 for a $100 direct deposit advance, and it was due in 10 days. What is the effective a...

Q: In early 2016, typical terms on a payday loan involved a

In early 2016, typical terms on a payday loan involved a $15 charge for a two-week payday loan of $100. Assuming there are 26 fourteen-day periods in a year, what is the effective annual rate on such...

Q: Differentiate between a nominal annual rate and an effective annual rate (

Differentiate between a nominal annual rate and an effective annual rate (EAR). Define annual percentage rate (APR) and annual percentage yield (APY).

Q: What effect does compounding interest more frequently than annually have on (

What effect does compounding interest more frequently than annually have on (a) future value and (b) the effective annual rate (EAR)? Why?

Q: How does the effective annual rate differ between a loan requiring interest

How does the effective annual rate differ between a loan requiring interest payments at maturity and another, similar loan requiring interest in advance?

Q: What are the basic terms and characteristics of a single-payment

What are the basic terms and characteristics of a single-payment note? How is the effective annual rate on such a note found?

Q: Using annual, semiannual, and quarterly compounding periods for each of

Using annual, semiannual, and quarterly compounding periods for each of the following, (1) calculate the future value if $5,000 is deposited initially, and (2) determine the effective annual rate (EAR...

Q: You plan to invest $2,000 in an individual retirement

You plan to invest $2,000 in an individual retirement account (IRA) today at a nominal annual rate of 8%, which is expected to apply to all future years. a. How much will you have in the account after...

Q: A financial institution made a $4 million, 1-year

A financial institution made a $4 million, 1-year discount loan at 6% interest, requiring a compensating balance equal to 5% of the face value of the loan. Determine the effective annual rate associat...

Q: Lincoln Industries has a line of credit at Bank Two that requires

Lincoln Industries has a line of credit at Bank Two that requires it to pay 11% interest on its borrowing and to maintain a compensating balance equal to 15% of the amount borrowed. The firm has borro...

Q: Weathers Catering Supply Inc. needs to borrow $150,000

Weathers Catering Supply Inc. needs to borrow $150,000 for 6 months. State Bank has offered to lend the funds at a 9% annual rate subject to a 10% compensating balance. (Note: Weathers currently maint...

Q: Cumberland Furniture wishes to establish a prearranged borrowing agreement with a local

Cumberland Furniture wishes to establish a prearranged borrowing agreement with a local commercial bank. The bank’s terms for a line of credit are 3.30% over the prime rate, and each year the borrowin...

Q: Commercial paper is usually sold at a discount. Fan Corporation has

Commercial paper is usually sold at a discount. Fan Corporation has just sold an issue of 90-day commercial paper with a face value of $1 million. The firm has received initial proceeds of $978,000. (...

Q: Maximum Bank has analyzed the accounts receivable of Scientific Software, Inc

Maximum Bank has analyzed the accounts receivable of Scientific Software, Inc. The bank has chosen eight accounts totaling $134,000 that it will accept as collateral. The bank’s terms include a lendin...

Q: Data Back-Up Systems has obtained a $10,000

Data Back-Up Systems has obtained a $10,000, 90-day bank loan at an annual interest rate of 15%, payable at maturity. (Note: Assume a 365day year.) a. How much interest (in dollars) will the firm pay...

Q: Jackson Industries has borrowed $125,000 under a line-

Jackson Industries has borrowed $125,000 under a line-of-credit agreement. Although the company normally maintains a checking account balance of $15,000 in the lending bank, this credit line requires...

Q: A firm engaged a one‐year, monthly pay, $

A firm engaged a one‐year, monthly pay, $100,000 line of credit at 9 percent plus a 0.25 percent commitment fee on the unused portion of the line. The firm used 75 percent of the line for the first ha...

Q: Answer the following questions. a. What is the annual

Answer the following questions. a. What is the annual percentage rate (APR) on a loan that charges interest of .75 percent per month? b. What is the effective annual rate (EAR) on the loan described i...

Q: You have recently seen a credit card advertisement that states that the

You have recently seen a credit card advertisement that states that the annual percentage rate is 12 percent. If the credit card requires monthly payments, what is the effective annual rate of interes...

Q: A credit card advertisement states that the annual percentage rate is 21

A credit card advertisement states that the annual percentage rate is 21 percent. If the credit card requires quarterly payments, what is the effective annual rate of interest on the loan?

Q: Beckheart is seeking financing for its inventory. Safe-proof Warehouses

Beckheart is seeking financing for its inventory. Safe-proof Warehouses offers space in their facility for Beckheart’s inventory. They offer loans with a 15-percent APR equal to 60% of the inventory....

Q: Your firm needs to raise funds for inventory expansion.

Your firm needs to raise funds for inventory expansion. a. What is the effective annual rate on a loan of $150,000 if it is discounted at a 12 percent stated annual rate and it matures in five months...

Q: Bank A offers loans with a 10 percent stated annual rate and

Bank A offers loans with a 10 percent stated annual rate and a 10 percent compensating balance. You wish to obtain $250,000 in a six-month loan. a. How much must you borrow in order to obtain $250,000...

Q: 1. If you wish to compound or discount quarterly (four

1. If you wish to compound or discount quarterly (four times a year), for a period of five years, what would be the number of periodic payments (or receipts)? a. Five b. Ten c. Fifteen d. Twenty...

Q: Describe the underlying meaning of compounding and compounding periods. How does

Describe the underlying meaning of compounding and compounding periods. How does it relate to time value? Include the idea of an effective annual rate (EAR). What is the annual percentage rate (APR)?...

Q: A very optimistic hedge fund investor expects his single-deposit investment

A very optimistic hedge fund investor expects his single-deposit investment to triple in value in 5 years. (a) What is the required effective monthly rate, compounded continuously? (b) What is the cor...

Q: You want to buy a new sports coupe for $84,

You want to buy a new sports coupe for $84,500, and the finance office at the dealership has quoted you an APR of 4.7 percent for a 60-month loan to buy the car. What will your monthly payments be? Wh...

Q: You are looking at an investment that has an effective annual rate

You are looking at an investment that has an effective annual rate of 14.3 percent. What is the effective semiannual return? The effective quarterly return? The effective monthly return?

Q: Your firm invested $2,500,000 in 270-

Your firm invested $2,500,000 in 270-day commercial paper today. At the end of the investment period (in 270 days) the firm will receive $2,585,000. a What is the 270-day holding period rate of retur...

Q: You invested in a 3-month certificate of deposit at your

You invested in a 3-month certificate of deposit at your bank. Your investment was $1,500, and at the end of the term you will receive $1,530. a.What is the holding period return (HPR) on your investm...

Q: ABC Ltd. reports that its sales are growing at the rate

ABC Ltd. reports that its sales are growing at the rate of 1.3% per month. DEF Inc. reports sales increasing by 4% each quarter. What is each company’s effective annual rate of sales growth?

Q: After 10 1 2 years of contributions of $2000 at the

After 10 1 2 years of contributions of $2000 at the end of every six months to an RRSP, the accumulated amount stood at $65,727.82. What semiannually compounded nominal rate of return and effective an...