Essentials of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
9th Edition
ISBN: 9781259277214
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Chapter 5, Problem 59QP
Summary Introduction
To calculate: The interest rate of the loan
Introduction:
The EAR stands for the effective annual rate. The effective annual rate is the actual rate that is earned by an individual. The interest rates are generally shown as it were compounded once in a year.
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You are looking at a one-year loan of $15,000. The interest rate is quoted as 10 percent plus 3 points. A point on a loan is simply 1 percent (one percentage point) of the loan amount. Quotes similar to this one are common with home mortgages. The interest rate quotation in this example requires the borrower to pay 3 points to the lender up front and repay the loan later with 10 percent interest.
What rate would you actually be paying here?
Multiple Choice
6.70%
10.00%
13.40%
12.06%
14.74%
You are looking at a one-year loan of $20,000. The interest rate is quoted as 10 percent plus two points. A point on a loan is 1 percent
(one percentage point) of the loan amount. Quotes similar to this one are common with home mortgages. The interest rate quotation in
this example requires the borrower to pay two points to the lender up front and repay the loan later with 10 percent interest. What rate
would you actually be paying here?
Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.
Answer is complete but not entirely correct.
Interest rate
12:00 %
You are looking at a one-year loan of $20,000. The interest rate is quoted as 10 percent plus 2 points. A point on a loan is simply 1 percent (one percentage point) of the loan amount. Quotes similar to this one are common with home mortgages. The interest rate quotation in this example requires the borrower to pay 2 points to the lender up front and repay the loan later with 10 percent interest.
What rate would you actually be paying here?
Chapter 5 Solutions
Essentials of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 5.1 - Prob. 5.1ACQCh. 5.1 - Prob. 5.1BCQCh. 5.1 - Prob. 5.1CCQCh. 5.2 - In general, what is the present value of an...Ch. 5.2 - Prob. 5.2BCQCh. 5.3 - If an interest rate is given as 12 percent,...Ch. 5.3 - What is an APR? What is an EAR? Are they the same...Ch. 5.3 - In general, what is the relationship between a...Ch. 5.4 - What is a pure discount loan?Ch. 5.4 - What does it mean to amortize a loan?
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