1. What is the effective annual rate (EAR) of a mortgage that is advertised at...
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1. What is the effective annual rate (EAR) of a mortgage that is advertised at 6.75% (APR) over the next twenty years and paid with quarterly payments? What is the effective annual rate (EAR) of the mortgage at 6.75% APR with quarterly payments?
2. Sam Hinds, a local dentist, is going to remodel the dental reception area and add two new workstations. He has contacted A-Dec, and the new equipment and cabinetry will cost $15,000. The purchase will be financed with an interest rate of 9% loan over 8 years.
a. What will Sam have to pay for this equipment if the loan calls for semiannual payments (2 per year) and weekly payments (52 per year)?
b. Compare the annual cash outflows of the two payments. Why does the weekly payment plan have less total cash outflow each year?
c. What will Sam have to pay for this equipment if the loan calls for semiannual payments (2 per year)?
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