Problem:
An investment instrument pays $1.35 million at the end of each of the next ten years. An investor has an alternative investment with the same amount of risk that will pay interest at 8.5 percent, compounded quartely.
What effective rate should you receive in this investment?
How much should you pay for the mortgage instrument?
After the EAR is established, how is the problem set up for the effective rate. And how will you determine what to pay for the mortgage instrument?