Problem 1.
A. What happens to the future value of an annuity if your increase the rate?
B. What happens to the present value?
Problem 2. APR AND EAR: Should lending laws be changed to require lenders to report EARs in stead of APRs? Why or why not?
Problem 3. Time Value: On subsidized Stafford loans a common source of financial aid for college students interest does not begin to accrue until repayments begins. Who receives a bigger subsidy ,a freshman or a senior? Explain.
Problem 4. Calculating Future Values. Compute the future value of $1,000 compounded annually for:
a. 10 years at 5 percent
b. 10 years at 10 percent
c. 20 years at 5 percent
d. Why is the interest earned in part (c) not twice the amount earned in part (a)?