Option Rex and Bonnie are wanting to buy a new entertainment couch with a sales price of $20,000 for their home theater room. They are presented with 2 different financing options from their bank for their purchase. Analyze and compute the required info below. Option 1: A single-payment loan due in 2 years. Interest is computed using the simple interest method (I=P*R* T). The annual interest rate is 12%. Option 2: A discounted loan due in 2 years. The discount/interest is computed using the discount method (D=P* R * T). The annual discount/interest rate is 12%. (Hint: The loan balance to be repaid is = to the sales price of the couch)

Option Rex and Bonnie are wanting to buy a new entertainment couch with a sales price of $20,000 for their home theater room. They are presented with 2 different financing options from their bank for their purchase. Analyze and compute the required info below. Option 1: A single-payment loan due in 2 years. Interest is computed using the simple interest method (I=PR T). The annual interest rate is 12%. Option 2: A discounted loan due in 2 years. The discount/interest is computed using the discount method (D=P* R * T). The annual discount/interest rate is 12%. (Hint: The loan balance to be repaid is = to the sales price of the couch)

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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A new homeowner is purchasing a living room set for $2,590 and must decide between two financing offers.Offer 1: $200 down payment, 24.90% interest rate, compounded monthly, for 3 years, with no payments due for 6 months and then fixed payments of $121.96 for the remainder of the loan termOffer 2: $450 down payment, 22.90% interest rate, compounded monthly, for 3 years, with no payments due for 12 months and then fixed payments of $140.48 for the remainder of the loan termPart A: What is the total cost of offer 1?Part B: What is the total cost of offer 2? Part C: Which financing offer should the new homeowner choose?
You are trying to purchase a condo and are looking at various options to finance the purchase.Your two best options are Option I a loan at 13.25 % (APR) interest compounded semi-annually. Or a 11.75 % (APR) interest loan compunded daily. Evaluate each loan structure and determine the Effecte Annual Rate (EAR) of each loan to determine what is the better deal.
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