1 his recently departed dear aunt annie may she rest in, Ask an Expert

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1. His recently departed dear Aunt Annie, may she rest in peace, has left Tom a 6-year annuity paying $4,500 per year. He will receive the first payment 4 years from today. If he is discounting at 7% (EAR), what is the present value of his inheritance?

2. This question is based on American Express Bank’s card member agreement. This agreement is a contract between a credit card holder and American Express Bank. In what follows, assume that the Prime Rate as defined by the agreement is 0% and your APR for purchases is Prime Rate + 11.99%, and hence you are paying 11.99% APR on balances you carry. Assume that you are planning to carry the balance for one month and your average daily balance, as defined by the agreement, will be exactly $1,000 every day. There are 30 days in the month. Answer the following questions:

a. According to the card member agreement, how much interest will you have to pay at the end of the month?

b. Does American Express calculate the interest within one month as simple or compound interest?

c. What is the effective annual rate (EAR) that American Express charges the card holder?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M91416158

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