Jérôme Kerviel Bank charges an APR of 11.80 per cent, compounded monthly, on its businessloans. Société Générale charges a six per cent semiannual rate on similarloans. Which option is best from the borrower's point of view?A) Jérôme Kerviel Bank's loan is the best option because its EAR is 12.46 per cent.B) Société Générale's loan is the best option because its EAR is 12.36 per cent.C) Jérôme Kerviel Bank's loan is the best option because its monthly rate is 0.98 per cent,which is smaller than Société Générale's monthly rate at one per cent.D) Société Générale's loan is the best option because its EAR is 6.09 percent.E) Both options are identical from a borrower's perspective.

To determine which loan option is best from the borrower's perspective, we need to compare the…

Answered: Jérôme Kerviel Bank charges an APR of…

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

A lender requires PMI that is 0.8% of the loan amount of $590,000. How much (in dollars) will this add to the borrower’s monthly payment? Round your answer to the nearest cent.
Ricky Ripov’s Pawn Shop charges an interest rate of 18.25 percent per month on loans to its customers. Like all lenders, Ricky must report an APR to consumers. a. What rate should the shop report? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the effective annual rate? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
One bank offers to loan you money at an interest rate of 12% compounded quarterly, and another bank offers to loan you money at 11.8% compounded continuously. Which loan would you prefer, and why?
Your company is considering three options for financing its short term operations i. Borrow Tk.25 million from Shuktara Bank at 15 percent interest rate and a 20 percent compensating balance requirement signing a 60 day promissory note. ii. Borrow Tk.25 million from Chandramukhi Bank at 15 percent discount interest. i. Forego discount on a trade credit on terms 3/10, net 50. Strictly based on effective cost, which option would you select and why?
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 firm offers terms of 1.2/10, net 60. a. What effective annual interest rate does the firm earn when a customer does not take the discount? (Use 365 days a year. Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What effective annual interest rate does the firm earn if the terms are changed to 2.2/10, net 60, and the customer does not take the discount? (Use 365 days a year. Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. What effective annual interest rate does the firm earn if the terms are changed to 1.2/10, net 75, and the customer does not take the discount? (Use 365 days a year. Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) d. What effective annual interest rate does the firm earn if the terms are changed to 1.2/15, net 60, and the customer does not…
None
Two types of borrowers, type A and B, are requesting a loan in the amount of $44,000. Type A repays with prob. 1, while type B repays with prob. 0.76. If a bank cannot observe type, but believes that fraction 0.8 of the borrower pool is type A, then what is the competitive pooling rate the bank can offer these borrowers? 8.7% 7.7% 6.5% 5.0%
Consider two loans with a 1-year maturity and identical face values: a(n) 8.3% loan with a 0.99% loan origination fee and a(n) 8.3% loan with a 4.9% (no-interest) compensating balance requirement. Which loan would have the higher effective annual rate (EAR)? Why? The EAR in the first case is %. (Round to one decimal place.)
(Related to Checkpoint 18.2) (Evaluating trade credit discounts) If a firm buys on trade credit terms of 5/15, net 90 and decides to forgo the trade credit discount and pay on the net day, what is the annualized cost of forgoing the discount (assume a 365-day year)? The annualized cost of the trade credit terms of 5/15, net 90 is %. (Round to two decimal places.)
Find the return on a loan under the following conditions. The base rate on the loan is 5%, the risk premium applied is 4%. The bank charges a 0.5% origination fee, imposes a 5% compensating balance and is subject to a 10% reserve requirement.
The Assured Independence Bank has offered to lend you $200,000 on a line of credit. Interest is charged at 11% and there is a commitment fee of $500. If the payment terms are 2/10 n45 what is the cost of this loan? Express the cost of this option as a simple interest rate (%+2 decimal places).

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