My question is Q 65- calculating intrest rates. Thank you!
63. 64. uliy. (b) The present value of live years' future salary. You assume the salary will be $51,000 per year. (c) S1500 for pain and suffering. (d) $20,000 for court costs. Assume that the salary paymer are equal amounts paid at the end of each month. If the interest rate you choose i 8 percent EAR, what is the size of the settlement? If you were the plaintiff, wou you like to see a higher or lower interest rate? Calculating EAR with Points (L04) You are looking at a one-year loan $10,000. The interest rate is quoted as 8 percent plus two points. A point on a loa is simply 1 percent (one percentage point) of the loan amount. Quotes similar to the one are common with home mortgages. The interest rate quotation in this examp requires the borrower to pay 2 points to the lender up front and repay the loan late with 8 percent interest. What rate would you actually be paying here? Calculating EAR with Points [LO4] The interest rate on a one-year loan is quoted as 12 percent plus 3 points (see the previous problem). What is the EAR? Is you answer affected by the loan amount? Calculating Interest Rates [LO2] You are buying a house and will bortom $200,000 on a 30-year fixed rate mortgage with monthly payments to finance the purchase. Your loan officer has offered you a mortgage with an APR of 4 percent Alternatively, she tells you that you can buy down the interest rate to 3.75 percent if you pay points up front on the loan. A point on a loan is 1 percent (one percentage point) of the loan value. How many points, at most, would you be willing to pay to buy down the interest rate? Calculating Interest Rates (LO2] In the previous problem, suppose that you be lieve that you will only live in the house for eight years before selling the house and buying another house. This means that in eight years, you will pay off the remaining balance of the original mortgage. What is the maximum number of points that you would be willing to pay now? EAR versus APR (LO4) Two banks in the area offer 30-year, $230,000 mortgages at 4.8 percent and charge a $3,900 loan application fee. However, the application feel charged by Insecurity Bank and Trust is refundable if the loan application is denicu whereas that charged by I.M. Greedy and Sons Mortgage Bank is not. The current disclosure law requires that any fees that will be refunded if the applicant is reject be included in calculating the APR, but this is not required with nonrefundable (presumably because refundable fees are part of the loan rather than a fee). What the EARs on these two loans? What are the APRs? Calculating EAR with Add-On Interest (LO4] This problem illustrates a dece! tive way of quoting interest rates called add-on interest. Imagine that you advertisement for Crazy Judy's Stereo City that reads something like this: Instant Credit! 16.5% Simple Interest! Three Years to Pay! Low, Low Monthly ments!" You're not exactly sure what all this means and somebody has sp over the APR on the loan contract, so you ask the manager for clarification. Judy explains that if you borrow $1,000 for three years at 16.5 percent inte 65. 66. 67. like this: "$1.000 has spilled in cent interest in
