1. How do we compute the effective annual interest rate? 2. Will the effective annual rate increase as the frequency of compounding increases? A. The "5-6" scheme availed by a lot of individuals is prohibited by law. This transaction is considered usurious because of the unreasonable interest charged by the creditor to the borrower of the loan. It is called "5-6" because when you borrow 5 pesos, you are required to pay 6 pesos after a month. This translates into a monthly interest rate of 20%. Assuming monthly compounding, what is the effective annual interest rate of this scheme that makes it too much a burden to bear for the borrower?

1. How do we compute the effective annual interest rate? 2. Will the effective annual rate increase as the frequency of compounding increases? A. The "5-6" scheme availed by a lot of individuals is prohibited by law. This transaction is considered usurious because of the unreasonable interest charged by the creditor to the borrower of the loan. It is called "5-6" because when you borrow 5 pesos, you are required to pay 6 pesos after a month. This translates into a monthly interest rate of 20%. Assuming monthly compounding, what is the effective annual interest rate of this scheme that makes it too much a burden to bear for the borrower?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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If money is not an economic resource, why is interest paid and received for its use? What considerations account for the fact that interest rates differ greatly on various types of loans? Use those considerations to explain the relative sizes of the interest rates on the following:a. A 10-year $1000 government bond.b. A $20 pawnshop loan.c. A 30-year mortgage loan on a $145,000 house.d. A 24-month $12,000 commercial bank loan to finance the purchase of an automobile.e. A 60-day $100 loan from a personal finance company.
Economics (Dis the risk that a borrower will make additional principal payments on the loan and thus reduce the total amount of interest paid. Consider a traditional pass-through security and a collateralized mortgage obligation (CMO) with three tranches. Suppose 4% of the borrowers do not repay their loans. Which of the following statements are accurate? Check all that apply. a.All holders of pass-through will lose 4% of their money. b.Only the bottom tranche of CMO holders will lose 4% of their money. c.Only the top two tranches of CMO holders will lose their money. d. Only 4% of pass-through holders will lose their money
3. Mr. Econ borrowed money from the bank last January 16, 2005. He receives from the bank P 440,000.00 and promised to pay P 500,000.00 on October 12, 2005. Compute: (a) Simple interest rate; and (b) Discount Rate.
[5] Directions: Identify if the problem involves simple interest or compound interest. Then, solve the problem. Show complete solution. Your cousin deposited P1,200.00 in a certificate of deposit (CD) at an interest rate of 5.5%. He earned P198.00 in simple interest. How long was the CD for?
According to the article, why are interest rates on credit cards higher than interest rates on cars or homes? Choose one or more: A. People who use credit cards take more financial risks than people who buy cars or homes. ⒸB. Credit card issuers are londing money that is unsecured. C. Credit card debts are among the first written off when people file for bankruptcy. O D. Credit card debt typically is for a shorter time period than a loan for a car or home.
5. A bank deposit of P12,045 two years ago has an actual amount now of P14,049.28 but its calculated real value is onlyP12,136.30. What is the effective interest rate earned by the deposit? Select the correct response: O 7.59% O 8.00% O 0.758% O 0.378%
A mortgage agent has been charged by FSRA of providing false or misleading information to a client. Given this scenario which of the following is a potential penalty? Select one: a. Up to a $200,000 fine b. Up to a $25,000 fine c. Up to a $500,000 fine d. Up to a $100,000 fine
Payday loans (also called cash advance loans) are short-term, high-interest loans marketed as a way for people to borrow money for a short period of time until their paycheck arrives. However, like many other short-term loans, they should be used with extreme caution. Payday loans typically carry a fixed fee of $15 to $30 per $100 borrowed, and lenders sometimes demand access to your checking account to make sure you will pay the fees. Complete parts (a) through (c) below GSTID a. Consider a payday loan that has a fixed fee of $17 per $100 borrowed that is due in 2 weeks (when your paycheck arrives). If you borrow $800, what is the total fee (not including your $800 principal) you owe the lender at the end of 2 weeks? $136 (Round to the nearest cent as needed.) b. What is the interest rate for that 2-week period? 17% (Round to the nearest whole number as needed.) What is the equivalent annual percentage rate (APR) for this loan? (Assume that there are 52 weeks in 1 year). How does this…
Question 2 Suppose you have a credit card with a 14% interest rate with monthly compounding, a home equity loan with a 7% interest rate with monthly compounding, and a bank savings account paying a 5% interest rate with annual compounding (all interest rates are quoted as Annual Percentage Rates). Your income tax rate is 40%. Only the interest on the savings account is taxable, and only the interest on the home equity loan is tax-deductible. What is the effective after-tax interest rate of each instrument, expressed as an annual rate? Suppose you are considering purchasing a new car and are offered a car loan with a 4.8% interest rate (Annual Percentage Rate) and monthly compounding (which is not tax-deductible). Should you take the car loan?
A bank that provides overdraft protection charges 12 percent for each $100 (or portion of $100) borrowed when an overdraft occurs. a. What amount of interest would the customer pay for a $440 overdraft? (Assume the interest is for the full amount borrowed for a whole year.) b. How much would be saved by using the overdraft protection loan if a customer has five overdraft charges of $45 each during the year?

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