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
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Rahul needs a loan and is speaking to several lending agencies about the interest rates they would charge and the terms they offer. He particularly likes his local bank because he is being offered a nominal rate of 4%. But the bank is compounding daily. What is the effective interest rate that Rahul would pay for the loan?
4.258%
4.202%
4.166%
4.081%
Another bank is also offering favorable terms, so Rahul decides to take a loan of $22,000 from this bank. He signs the loan contract at 8% compounded daily for six months. Based on a 365-day year, what is the total amount that Rahul owes the bank at the end of the loan's term? (Hint: To calculate the number of days, divide the number of months by 12 and multiply by 365.)
$23,699.16
$24,042.63
$22,897.74
$23,355.69
Can you please expain how to do these two questions?
Thank you!
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