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My favorite Credit Card by flickr user .KM. Credit Cards and Interest Rates current Canadian rates

Applied Math 40S May 2, 2008

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Credit cards, nominal, and effective interest rates.

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Page 1: Applied Math 40S May 2, 2008

My favorite Credit Card by flickr user .KM.

Credit Cards and Interest Ratescurrent Canadian rates

Page 2: Applied Math 40S May 2, 2008
Page 3: Applied Math 40S May 2, 2008

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Page 4: Applied Math 40S May 2, 2008

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Page 5: Applied Math 40S May 2, 2008

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Page 7: Applied Math 40S May 2, 2008
Page 8: Applied Math 40S May 2, 2008

Use the Rule of 72 to estimate the doubling time for these interest rates:

(a) 4% per annum, compounded annually

(b) 8% per annum, compounded annually

(c) 24% per annum, compounded annually

Use the TVM solver in your calculator to calculate the the compound amount of a $100 investment for the doubling times estimated above.

How accurate does the Rule of 72 seem to be?

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Page 9: Applied Math 40S May 2, 2008

Nominal vrs. Effective Interest Rate

You have money to invest in interest-earning deposits. You have determined that suitable deposits are available at your bank paying 6.5% per annum compounded semiannually, at a local trust company paying 6.625% per annum compounded annually and at the Student Credit Union paying 6.45% per annum compounded monthly. Which institution offers the best rate of interest?

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Page 10: Applied Math 40S May 2, 2008

Nominal vrs. Effective Interest Rate

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N=I%=PV=PMT=FV=P/Y=C/Y=PMT: END BEGIN

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Page 11: Applied Math 40S May 2, 2008

Nominal Rate of Interest - The stated rate of interest applied to your investment.

Effective Rate of Interest - The interest rate if an annuity is compounded annually.

6.5% per annum compounded semiannually6.625% per annum compounded annually 6.45% per annum compounded monthly

Page 12: Applied Math 40S May 2, 2008

Marge invested $2500 at 6.5% per annum compounded quarterly. Calculate the value of her investment after three years.

Calculate the effective interest rate.

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Page 13: Applied Math 40S May 2, 2008

Credit Card InterestCalculate the effective interest rate of $1.00 invested at 18.5% compounded daily for one year.

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Page 14: Applied Math 40S May 2, 2008

Shaina wishes to invest $2000 given by her grandfather. She has an option of a guaranteed investment certificate earning 8.75%, compounded quarterly, or a savings bond of 9%, compounded semi-annually.Which investment should she choose?

If each investment term is 5 years, what will be the difference in their values at the end of the term?

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Page 15: Applied Math 40S May 2, 2008

N=24I%=8PV=0PMT=-275▪FV=7122.552807P/Y=12C/Y=2PMT: END BEGIN

N=24I%=8PV=-5000▪PMT=226.1364573FV=0P/Y=12C/Y=12PMT: END BEGIN

For each of the calculator screens below, fully describe a situation for which each one is a solution.

These problems have been posted separately on the blog. Pick one and in the comments to that post publish your answer. You CANNOT provide that same answer that another student published before you.