1. When comparing loans of equal amounts and equal time periods, you should select the loan that has the lowest:
nominal rate.
annual percentage rate.
stated rate.
quoted rate.
effective annual rate.
2. Tim plans to buy a car for $45,000 in six years time. To get this amount, he plans to invest $10,000 now, $12,000 next year, and an unknown equal amount in yeas 4 and 5. Please solve for this unknown equal amount if Tim expects to earn 8% a year. (Hint: Bring all known cash flows to the same point of time so that you can then solve for the unknown annuity).