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You are looking at a one-year loan of $20,000. The interest rate is quoted as 10 percent plus 5 points. A point on a loan
You are looking at a one-year loan of $20,000. The interest rate is quoted as 10 percent plus 5 points. A point on 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 5 points to the lender up front and repay the loan later with 10 percent interest. What is the actual rate you are paying on this loan? Work and answers must be done in Excel.
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