Economics: Private and Public Choice
16th Edition
ISBN: 9781337642224
Author: James D. Gwartney; Richard L. Stroup; Russell S. Sobel
Publisher: Cengage Learning US
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Question
Chapter 27, Problem 4CQ
To determine
Effective interest rate.
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Chapter 27 Solutions
Economics: Private and Public Choice
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- Suppose Alice decides to put some money in a new account that compounds twice per year. At the beginning of the year, before the first compounding, she deposits $10,000. At the end of the year, she finds $11,000 in the account. What was the interest rate on this account?arrow_forwardSuppose a bond pays annual interest of $50. Compute the interest rate per year that a bondholder can earn for each face value in the following table. Face Value Interest Rate per Year (Dollars) 200 500 1,000 (Percentage) If the annual interest paid stays the same and the face value of the bond goes up, then the interest rate paid for the bond per yeararrow_forwardIs it possible for a one-year coupon bond to have a negative nominal interest rate? Explain, how?arrow_forward
- Angela puts $5,000 in a savings account that pays 5 percent per year. The future value of her money one year from now is $ As the interest rate (Enter your response as a whole number.) the future value of Angela's $5,000 savings will increase.arrow_forwardThe central bank is selling $100 worth of bonds payable in one year. The price it gets today is $98. What is the implicit interest rate? (If you get 0.0112, please write 1.12)arrow_forwardHow to find the effective interest rate of a bond?arrow_forward
- Question 3 (2 marks): The Cash Grab Credit Card Company charges a nominal 28 percent interest on overdue accounts, compounded daily. What is the effective annual interest rate? Show your answer to two decimal places of a percent.arrow_forwardImagine that a local water company issued a $10,000 ten-year bond at an interest rate of 6%. You are thinking about buying this bond one year before the end of the ten years, but interest rates are now 9%. Calculate what you would actually be willing to pay for this bond.arrow_forwardSam promises to pay Sandy $2,000 in four years and another $3,000 four years later for a loan of $2,000 from Sandy today. What is the interest rate that Sandy is getting? Assume interest is compounded monthly.arrow_forward
- Assume an interest rate of 5%. What is the maximum amount an individual would be willing to give up today in exchange for $1, paid 30 years in the future?arrow_forwardWhat is the yield to maturity on a simple loan for $5 million that requires a repayment of $9 million in seven years’ time?arrow_forwardPlease answer everything. Define each of the following loan terms, and explain how they are related to one another: the prime rate, the rate on commercial paper, the simple interest rate on a bank loan calling for interest to be paid monthly, and the rate on an installment loan based on add-on interest. If the stated rate on each of these loans was 5%, would they all have equal, effective annual rates? Explain. Kindly SKIP if you're not diligent to answer them. Thank you!arrow_forward
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