Problem
1. A $20,000 loan obtained today is to be repaid in equal installments over the next six years, starting at the end of this year. If the annual interest rate is 10%, compounded annually, how much is the payment for each year?
2. Patricia Graham is planning on going to the university. To finance her education, her bank has agreed to lend her $125,000 on the first day of each year for the next three years beginning January 1, 2011. The annual interest rate of 10% is compounded yearly. Patricia plans to graduate on December 31, 2013. What will be the amount owing to the bank on that date?
3. A credit card company has interest rate of 10% per annum. If interest is compounded quarterly, Calculate:
a. the periodic rate
b. the EAR
4. Suppose that you have $1,000,000 available for investment for a period of four years. After investigating the local banks, you have compiled the following table for comparison.
Bank Interest Rate Compounding
Scotia Bank 10% Annually
National Commercial Bank 9% Semi-annually
First Caribbean International Bank 6.8% Quarterly
Using the Future Value concept (based on calculation), in which bank should you deposit your funds to maximize return and why?