Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

You are looking at a one-year loan of $16,500. The interest rate is quoted as 7.7 percent plus two points. A point on a loan

You are looking at a one-year loan of $16,500. The interest rate is quoted as 7.7 percent plus two points. Apointon a loan is simply 1 percent (one percentage point) of the loan amount. Quotes similar to this one are very 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 7.7 percent interest. What rate would you actually be paying here.

1. Interest Rate %?

2. EAR % ?

2. What is the EAR for a one-year loan with a quoted interest rate of 10.7 percent plus two points?

EAR %?

3. Is your answer affected by the loan amount? Yes or No.

(Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

International financial management

Authors: Jeff Madura

13th edition

978-1337099738, 1337099732, 9781337515894, 1337515892, 978-1337587211

More Books

Students also viewed these Finance questions

Question

What is an organizations structure, and what does it consist of?

Answered: 1 week ago