Gizmonic Institute Corp. needs to take out a one-year bank loan of $400,000 and has been offered loan terms by two different banks. One bank has offered a simple interest loan of 9% that requires monthly payments. The loan principal will be paid back at the end of the year. Another bank has offered 6% add-on interest to be repaid in 12 equal monthly installments. A. Based on a 360-day year, what will be the monthly payment for each loan for November? (Hint: Remember that November has 30 days.) Value Simple interest monthly payment Add-on interest monthly payment Choose the answer that best evaluates the following statement: B. Mall Toys Co1 always prefers simple interest loans over add-on interest loans because even if the interest rate is higher on the simple interest loan, its monthly payment is lower. (Options Below) The company needs to be sensitive to interest rate differences between loan types and take them into consideration when deciding what type of loan to take out. The company should only accept add-on interest loans when it cannot get simple interest loans.
Gizmonic Institute Corp. needs to take out a one-year bank loan of $400,000 and has been offered loan terms by two different banks. One bank has offered a simple interest loan of 9% that requires monthly payments. The loan principal will be paid back at the end of the year. Another bank has offered 6% add-on interest to be repaid in 12 equal monthly installments. A. Based on a 360-day year, what will be the monthly payment for each loan for November? (Hint: Remember that November has 30 days.) Value Simple interest monthly payment Add-on interest monthly payment Choose the answer that best evaluates the following statement: B. Mall Toys Co1 always prefers simple interest loans over add-on interest loans because even if the interest rate is higher on the simple interest loan, its monthly payment is lower. (Options Below) The company needs to be sensitive to interest rate differences between loan types and take them into consideration when deciding what type of loan to take out. The company should only accept add-on interest loans when it cannot get simple interest loans.
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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Question
Consider this case:
Gizmonic Institute Corp. needs to take out a one-year bank loan of $400,000 and has been offered loan terms by two different banks. One bank has offered a simple interest loan of 9% that requires monthly payments. The loan principal will be paid back at the end of the year. Another bank has offered 6% add-on interest to be repaid in 12 equal monthly installments.
A. Based on a 360-day year, what will be the monthly payment for each loan for November? (Hint: Remember that November has 30 days.)
|
|
Value
|
|---|---|
| Simple interest monthly payment | |
| Add-on interest monthly payment |
Choose the answer that best evaluates the following statement:
B. Mall Toys Co1 always prefers simple interest loans over add-on interest loans because even if the interest rate is higher on the simple interest loan, its monthly payment is lower. (Options Below)
The company needs to be sensitive to interest rate differences between loan types and take them into consideration when deciding what type of loan to take out.
The company should only accept add-on interest loans when it cannot get simple interest loans.
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