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4-93 You are taking a $5000 loan. You will pay it back in four equal amounts,...

4-93 You are taking a $5000 loan. You will pay it back in four equal amounts, paid every 6 months start- ing 5 years from now

4-93 You are taking a $5000 loan. You will pay it back in four equal amounts, paid every 6 months start- ing 5 years from now. The interest rate is 12% compounded semiannually. Calculate: (a) The effective interest rate (6) The amount of each semiannual payment (c) The total interest paid
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$ Loan amount Time Rate 5,000 4 installments 12% Solution (a) Effective Interest Rate = (1 + rate /t)^2 -1 (1 +0.12/2)^2 -1 1

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