ECONOMICS (CBSE/UGC NET)

ECONOMICS

FINANCIAL MARKETS

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Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]

You plan to borrow $2, 000 now and repay it in 5 equal annual installments at the end of each year. If the annual interest rate is 11%, how much will your annual payments be?

A	$401.84
B	$541.14
C	$400.00
D	$444.00

Explanation:

Detailed explanation-1: -The APY for a 1% rate of interest compounded monthly would be 12.68% [(1 + 0.01)^12 – 1 = 12.68%] a year. If you only carry a balance on your credit card for one month’s period, you will be charged the equivalent yearly rate of 12%.

Detailed explanation-2: -EAR Example 12683 or 12.683%, which is the effective annual interest rate. Even though the bank offered a 12% stated interest rate, your money grew by 12.683% due to monthly compounding.

Detailed explanation-3: -How do you find the annual percentage rate? APR can be found with the formula, APR = ((Interest + Fees / Principal or Loan amount) / N or Number of days in loan term)) x 365 x 100. Is the annual percentage rate the same as the interest rate? No, APR is broader than the interest rate.

Detailed explanation-4: -Equated Monthly Installment (EMI) Formula The EMI flat-rate formula is calculated by adding together the principal loan amount and the interest on the principal and dividing the result by the number of periods multiplied by the number of months.

There is 1 question to complete.