Go Debt Bank Limited quotes a 9 percent interest rate on loans for 1 year. You are seeking a loan of $50,000 and as such you are expected to pay $4,500 in interest for the year. The terms of the loan requires you to repay the principal and interest at the end of year one = $54,500. Go Debt Bank Limited thus requires you to pay $54,500 over a 12 month period, or $4,541.67, per month over the next 12 months. Is this a 9 percent loan? What rate should be legally quoted? What is the effective annual rate? Show all working.
Go Debt Bank Limited quotes a 9 percent interest rate on loans for 1 year. You are seeking a loan of $50,000 and as such you are expected to pay $4,500 in interest for the year. The terms of the loan requires you to repay
the principal and interest at the end of year one = $54,500. Go Debt Bank Limited thus requires you to pay $54,500 over a 12 month period, or $4,541.67, per month over the next 12 months.
Is this a 9 percent loan?
What rate should be legally quoted?
What is the effective annual rate?
Show all working.
Interest rate that is charged on the loan is the rate of return that is expected by the Bank. Generally, banks quote the annual interest rate.
No, the loan is not 9% percent loan as the interest amount is added to the loan amount in the beginning of the year only and borrower needs to pay $4,541.67 per month for a year.
The correct annual interest rate as per the monthly payments should be quoted by the bank.
Step by step
Solved in 4 steps with 3 images
