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# EAR, APR, effective interest rate, retirement savings calculations

1) Your savings account offers monthly compounding. If your money doubles in 5 years what is the EAR and APR on the account?

2) The Jet Co. has an \$80,000 line of credit with a 12% interest rate and a 10% compensating balance requirement which is based on the total amount borrowed. What is the effective annual interest rate if the firm needs \$45,000 of cash for one year?

3) You are saving for your retirement in 20 years. You hope to have an annual income of \$80,000 per year (at the beginning of each year). At retirement you will have a life expectance of 25 years and when you die you plan to leave \$100,000 to your Community Foundation Fund. Upon retirement, all of your funds will earn a 7% EAR.

You have a defined contribution retirement plan in which your employer invests \$1,000 per month. The account pays a 9% APR with monthly compounding. The balance of your retirement savings will come from your annual (end of year) contributions into an investment account that pays an 11% EAR.

How much money do you need when you retire in 30 years?

How much do you need to set aside each year to meet your retirement goal?

#### Solution Summary

The solution examines EAR, APR, effective interest rates and retirement savings calculations.

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