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HOw does a change in interest % change future value?

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1. a. What happens to the future value of an annuity if your increase the rate?
b. What happens to the present value?

2. APR AND EAR: Should lending laws be changed to require lenders to report EARs in stead of APRs? Why or why not?

3. Time Value: On subsidized Stafford loans a common source of financial aid for college students interest does not begin to accrue until repayments begins. Who receives a bigger subsidy ,a freshman or a senior? Explain.

4. Calculating Future Values. Compute the future value of $1,000 compounded annually for:
a. 10 years at 5 percent
b. 10 years at 10 percent
c. 20 years at 5 percent
d. Why is the interest earned in part (c) not twice the amount earned in part (a)?

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See excel attached for computations.

2.  APR AND EAR:  Should lending laws be changed to require lenders to report EARs in stead of APRs? Why or why not?

Effective annual rate take compounding periods and fees into account. This is helpful since these factors ...

Solution provided by:
Carol Sargent, PhD
Education
  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
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