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Date Posted: 12:57:23 03/06/02 Wed
Author: Dr.D.
Subject: Re: Page 239# Problem 8.21
In reply to: Melissa Perez 's message, "Page 239# Problem 8.21" on 12:43:20 03/06/02 Wed

I'm assuming you mean pg 237. We haven't yet covered effective rate, but will on Monday (slides 21-27 under chapter 8). If you just CAN'T wait, here's a quick hint:

Think of the effective rate as the percentage change in a dollar if you invested it for a year.
In problem 8.21, the rate on the loan is 0.81027% PER MONTH. So, look at it as though a period were a month. WHat would a dollar grow to over a year's time?

if you used the formula, this would be the FV of a dollar for 12 periods at 0.81027% per period, or (1+.0081027)^12 = $1.10168. In other words, a dollar would grow by 10.168% over the year, for an EFFECTIVE rate of 10.168%.

Don't sweat it if it doesn't make perfect sense yet - we'll cover it extensively on Monday.

Hope this helps.

>I do not understand how to get the effective rate in
>this problem. If someone knows how, please let me
>know?!?

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