The interest rate on a one-year loan is quoted as 11 percent plus two points (see the
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The interest rate on a one-year loan is quoted as 11 percent plus two points (see the previous problem). What is the EAR? Is your answer affected by the loan amount?
Data From Previous Problem
You are looking at a one-year loan of $10,000. The interest rate is quoted as 8 percent plus three 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 three points to the lender up front and repay the loan later with 8 percent interest.
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Related Book For
Fundamentals of corporate finance
ISBN: 978-0073382395
9th edition
Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan
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