A car insurance company charges you a premium of $1452 a year for your car insurance policy.You have two options.Option 1 is to pay the $1452 in cash today.Option 2 is to make two payments of $749 at the following times: today and 6-months from today.What nominal rate of interest,j₄,are you being charged?

Question

Quizplus · Accepted Answer

The nominal rate of interest, j₄, is calculated by equating the present value of the two payments of $749 to the single payment of $1452. Solving for the interest rate gives approximately 12.88%.

A Car Insurance Company Charges You a Premium of $1452