College students are now graduating with loan debts averaging $24,000. Solve, a. If students repay their loan of $24,000 over 10 years with an annual effective interest rate of 8.3%, what will their annual payment be? b. What is the annual payment going to be when the interest rate is 9.6%, continuously compounded each year? c. What is the effective interest rate in Part (b)?

College students are now graduating with loan debts averaging $24,000. Solve, a. If students repay their loan of $24,000 over 10 years with an annual effective interest rate of 8.3%, what will their annual payment be? b. What is the annual payment going to be when the interest rate is 9.6%, continuously compounded each year? c. What is the effective interest rate in Part (b)?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 14P

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Concept explainers

Cost of Credit

The cost of credit is an extra amount that the borrower has to pay besides the loan amount. These credit charges may vary from loan to loan. The cost of credit includes interest charges, maintenance charges, and arrangement charges. Some of the costs are mandatorily collected by the lender based on the loan amount and tenure of the loan. The cost of credit is also called finance charges of the credit.

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