QUESTION 1.) The Maybe Pay Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $25,000 per year forever. If the required return on the investment is 7.2 percent, how much will you pay for the policy?
QUESTION 2.) In the previous problem, suppose a sales associate told you the policy costs $375,000. At what interest rate would this be a fair deal?
QUESTION 3.) Find the EAR in each of the following cases:
Stated Rate (APR) # of times compounded Effective rate (EAR)
8% Quarterly
16% Monthly
12% Daily
15% Infinite
QUESTION 4.) Find the APR, or stated rate, in each of the following cases:
Stated Rate (APR) # of times compounded Effective rate (EAR)
Semiannually 8.6%
Monthly 19.8%
Weekly 9.4%
Infinite 16.5%
QUESTION 5.) You want to buy a new sports coupe for $68,500 and the finance office at the dealership quoted you a 6.9 percent APR loan for 60 months to buy the car. What will your monthly payments be? What is the effective annual rate on the loan?