A offers $1,000 loans for up to 15 days for a flat fee of 5% oftheprincipal due at the time of lending.B also offers $1000loans. It charges $40 administrative fee at the time oflending, and interest rate of 56% per year. To make it easierfor the customers B divides interest and principal into 52equal weekly installments. Thus on a $1,000 loan a customerpays (1,000 (1.56)/52) = $30.00 every week.What effective annual interest rate each lender is charging.Which lender would you borrow from, if you need money forone year?

To determine the effective annual interest rate (EAR) for each lender, we need to calculate how much…

Answered: A offers $1,000 loans for up to 15 days…

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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Similar questions

The finance department of your company needs to separate the interest and principal of the final payment of a loan. The company borrowed 20,000 at 8% compounded quarterly with month end payments for two years. 1. What are the correct portions assigned to principal interest of the final payment?
A bank makes a loan of $1,000,000 at a rate of 6% p.a. It also requires a compensating balance of 5%. What is the effective cost to the borrower?
Red Lizard Construction just borrowed $53,600.00. The terms of the loan require the company to make equal monthly payments forever. The first monthly payment is due in 1 month. If the regular monthly loan payment is $600.00, then what is the EAR of the loan? A rate less than 10.44% or a rate greater than 14.72% A rate equal to or greater than 12.43% but less than 13.86% A rate equal to or greater than 10.44% but less than 11.06% A rate equal to or greater than 11.06% but less than 12.43% A rate equal to or greater than 13.86% but less than 14.72% 100
Jack Abrams borrowed $8,000 for nine months at an interest rate of 7% (simple interest). The bank also charges a $100 processing fee. What is the actual interest rate for this loan?
National Company has a P25,0000 line of credit at a 9% interest rate. The loan agreement requires a 3% compensating balance, which is based on the total amount borrowed, and which will be held in an interest-free account. What is the effective interest rate if the firm borrows P160,000 on the line of credit for one year? 8.67% 9.03% 8.78% 9.28%
A loan of $1420 taken out on June 7 requires three payments. The first payment is due on July 7. The second payment is twice as large as the first payment and is due on August 19. The final payment, due on November 2, is three times as large as the first payment. If the focal date is June 7, what is the size of each of the three payments at an interest rate of 4.9%? The first payment is $ the second payment is $, and the third payment is $ (Round the final answers to the nearest cent as needed. Round all intermediate values to sx decimal places as needed)
Yoo, Incorporated, has arranged a line of credit that allows it to borrow up to $51 million at any time. The interest rate is 627 percent per month. Additionally, the company must deposit 5 percent of the amount borrowed in a noninterest-bearing account. The bank uses compound interest on its line-of-credit loans. If the company needs $27 million for 8 months, how much will it pay in interest? Multiple Choice $1.307,50417 $1,457,29019 $1619,200.22 $1.230.592.16) $1,384,41618
Banca Monte dei Paschi di Siena has 300 depositors. Each depositor deposits $150 into the bank at time t=0. The bank promises each depositor 8% interest rate. Each depositor can either withdraw their money at t=1 or t=2. The bank uses the deposits to issue 2-year simple loans. If the bank faces a demand for withdrawal at t=1, it is able to sell its 2-year simple loans at the original loan value. If 200 depositors withdraw at t=1, what is the amount of payment (in $) each depositor who withdraws at t=2 receives? Round your answer to at least 2 decimal places.
A loan calls for 5 equal annual payments of $2,350. If the loan amount is $ 8,686, the interest rate is: (Round your answer to the nearest whole percent.) Interest rate
A $15,000 personal loan charges a rate of 6%, compounded monthly and charges a $250 administration fee at the outset. What is the effective cost of the loan? 6.06% 6.10% 6.17% 6.27% The answer is 6.27% but I would like to know how to solve this problem. Thank you.

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