1. EAR vs APR
Back when interest rates and inflation were about 18%, Congress passed the Truth in Lending Law, requiring lenders to show both figures to prospective borrowers.
a. If the APR on a car loan is 6%, with interest compounded annually, whats the EAR
b. whats EAR if interest is compounded monthly?
c. if compounded Daily?
d. WHY are these 3 answers different?
2. You are thinking of getting a 3 year car loan, for $12,000; the car dealer says the APR is 8%
a. if you make 3 EQUAL end of year payments, how big is each payment
b. if you make 36 EQUAL end of month payments, how big is each payment
3. Your parents decide to buy an annuity for their new grand child. They plan to pay $10,000 to a bank to buy a 10 year $100/month annuity. What is their rate of return or yield on this annuity purchase.