Dylan's Drivers is taking out a $5,000,000 two-year loan at a variable rate of LIBOR plus 1.00%. The LIBOR rate will be reset each year at an agreed upon date. The current LIBOR rate is 4.00% per year. Dylan's Drivers can lock in the future interest rate payments by using a forward rate agreement. an interest rate future. an interest rate swap. Any of the above

Dylan's Drivers is taking out a $5,000,000 two-year loan at a variable rate of LIBOR plus 1.00%. The LIBOR rate will be reset each year at an agreed upon date. The current LIBOR rate is 4.00% per year. Dylan's Drivers can lock in the future interest rate payments by using a forward rate agreement. an interest rate future. an interest rate swap. Any of the above

PFIN (with PFIN Online, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)

6th Edition

ISBN:9781337117005

Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Chapter7: Using Consumer Loans

Section: Chapter Questions

Problem 4FPE

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Question A loan can be settled by monthly payments of $350 in four years at 5.5% compounded monthly. If the lender sells the loan contract after two years, calculate the selling price if the new buyer's rate of return is: 1. 5.5% compounded monthly; 2. 5.0% compounded monthly. 3. Explain the impact on the selling price of a loan contract if the interest rate on the contract increases.
If you borrow $100,000 at an annual interest rate of 10% for six years, what is the annual payment (prior to maturity) on a fully amortized loan? 14 Your choice: 14/15 Qs A: $0.00 B: $10,000.00 C: $16,666.67 D: $22960.74
14EM
K Compare the monthly payments and total loan costs for the following pairs of loan options. Assume that both loans are fixed rate and have the same closing costs. You need a $110,000 loan. Option 1: a 30-year loan at an APR of 9.5% Option 2: a 15-year loan at an APR of 9% Find the monthly payment for each option. The monthly payment for option 1 is $ The monthly payment for option 2 is $ (Do not round until the final answer. Then round to the nearest cent as needed.)
12
13Assume you plan to borrow $400,000 from your bank to buy a home. The bank offers: • a 5-year fixed rate of 6.05%, compounded monthly. • a 3-year fixed rate of 5.75%, compounded monthly. If you choose to repay the borrowing in equal installments monthly over a 20 years, what would be the difference between your monthly payments at the two different APRs? a. $89.32 b. $68.94 c. $26.98 d. $154.58 14You expect that the interest rate will decrease in the near future, therefore you eventually choose the 3-year fixed rate. Then, what will be your mortgage balance after 3 years? a. $321,598.59 b. $452,321.21 c. $365,056.12 d. $379,325.89 15Three years passed, it's time to renew your mortgage. Upon your renewal, your bank is now offering a new 3-year fixed rate of 4.5%, what would be your monthly repayment amount after renewal? a. 2825.32 b. 2598.54 c. 1965.21 d. 2563.60
Don't use Excel
K Compare the monthly payments and total loan costs for the following pairs of loan options. Assume that both loans are fixed rate and have the same closing costs. You need a $160,000 loan. Option 1: a 30-year loan at an APR of 9%. Option 2: a 15-year loan at an APR of 8.5%. Find the monthly payment for each option. The monthly payment for option 1 is $ The monthly payment for option 2 is $ (Do not round until the final answer. Then round to the nearest cent as needed.) Find the total amount paid for each option. The total payment for option 1 is $ The total payment for option 2 is $ (Use the answers from the previous step to find this answer. Round to the nearest cent as needed.) Compare the two options. Which appears to be the better option? OA. Option 1 is the better option, but only if the borrower plans to stay in the same home for the entire term of the loan. OB. Option 1 will always be the better option.
Calculate the payment and rate adjustments for the following scenario. 5/1 Interest Only ARM $600k Loan amount 5% Interest Rate 30 year loan tenure Margin: 2.75 CAPS are 3/2/6 Index: 12 Month Treasury Average 1. What is the payment on this mortgage? 2. If the 5 year fixed period ends this month using the current 12 month Treasury average, what would the fully indexed rate be? Would it be affected by the CAPS? I want you to research the web to determine what the current 12 month Treasury average is. 3. If the 12 month Treasury average jumps to 3.75 for next year's adjustment, what is the new rate considering the CAPS?
2. Companies A and B have been offered the following rates per annum on a $20 million five-year loan: Company A Company B Fixed Rate 5.0% 6.4% Floating Rate LIBOR+0.1% LIBOR+0.6% Company A requires a floating-rate loan; company B requires a fixed-rate loan. Design a swap that will appear equally attractive to both companies. Answer the question by using excel and explain what did you do in all the parts.
Define the stated (quoted) or nominal rate INOM as well as the periodic rate IPER. Will the future value be larger or smaller if we compound an initial amount more often than annually—for example, every 6 months, or semiannually—holding the stated interest rate constant? Why? What is the future value of $100 after 5 years under 12% annual compounding? Semiannual compounding? Quarterly compounding? Monthly compounding? Daily compounding? What is the effective annual rate (EAR or EFF%)? What is the EFF% for a nominal rate of 12%, compounded semiannually? Compounded quarterly? Compounded monthly? Compounded daily?
Present Values Krista Kellman has an opportunity to purchase a government security that will pay $200,000 in 5 years. Required: Note: Round answers to two decimal places. 1. Calculate what Krista would pay for the security if the appropriate interest (discount) rate is 6% compounded annually. 2. Calculate what Krista would pay for the security if the appropriate interest (discount) rate is 10% compounded annually. 3. Calculate what Krista would pay for the security if the appropriate interest (discount) rate is 6% compounded semiannually.