Which of the following statements is most correct? The first payment under a 3-year, annual payment, amortized loan for $1,000 will include a smaller percentage (or fraction) of interest if the interest rate is 5 percent than if it is 10 percent. If you are lending money, then, based on effective interest rates, you should prefer to lend at a 10 percent nominal, or quoted, rate but with semiannual payments, rather than at a 10.1 percent nominal rate with annual payments. However, as a borrower you should prefer the annual payment loan. The value of a perpetuity (say for $100 per year) will approach infinity as the interest rate used to evaluate the perpetuity approaches zero. Statements a, b, and c are all true. Statements b and c are true.

Which of the following statements is most correct? The first payment under a 3-year, annual payment, amortized loan for $1,000 will include a smaller percentage (or fraction) of interest if the interest rate is 5 percent than if it is 10 percent. If you are lending money, then, based on effective interest rates, you should prefer to lend at a 10 percent nominal, or quoted, rate but with semiannual payments, rather than at a 10.1 percent nominal rate with annual payments. However, as a borrower you should prefer the annual payment loan. The value of a perpetuity (say for $100 per year) will approach infinity as the interest rate used to evaluate the perpetuity approaches zero. Statements a, b, and c are all true. Statements b and c are true.

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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Which of the following statements is CORRECT? Question 2 options: a) The proportion of the payment that goes toward interest on a fully amortized loan increases over time. b) An investment that has a nomiral rate of 6% with semiannual payments will have an effective rate that is smaller than 6%. c) If a loan or investment has annual payments, then the effective, periodic, and nominal rates of interest will all be different. d) The present value of a 3-year, $150 ordinary annuity will exceed the present value of a 3-year, $150 annuity due. e) if a loan has a nominal annual rate of 7%, then the effective rate will never be less than 7%.
am. 84.
Question 5. Attached is a similar question answered
Please provide explanation.
If money is not an economic resource, why is interest paid and received for its use? What considerations account for the fact that interest rates differ greatly on various types of loans? Use those considerations to explain the relative sizes of the interest rates on the following:a. A 10-year $1000 government bond.b. A $20 pawnshop loan.c. A 30-year mortgage loan on a $145,000 house.d. A 24-month $12,000 commercial bank loan to finance the purchase of an automobile.e. A 60-day $100 loan from a personal finance company.
Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
A borrower can borrow $10 million for six years. Assume the current LIBOR rate is 7%. After some consideration, he chooses the floating rate loan. Did he make the right decision if the LIBOR rates over the next five years were 6.5%, 6.0%, 5.5%, 5.0% and 4.5%? Using discount rate 7%. $2,787,659 $3348790 $2,776,850 $1,234,567 $4,141,523
Assume that a lender offers a 30-year, $153,000 adjustable rate mortgage (ARM) with the following terms: Initial interest rate = 7.5 percent Index = one-year Treasuries Payments reset each year Margin = 2 percent Interest rate cap = 1 percent annually; 3 percent lifetime Discount points = 2 percent Fully amortizing; however, negative amortization allowed if interest rate caps reached Based on estimated forward rates, the index to which the ARM is tied is forecasted as follows: Beginning of year (BOY) 2 = 7 percent; (BOY) 3 = 8.5 percent; (BOY) 4 = 9.5 percent; (BOY) 5 = 11 percent. Required: a. Compute the payments and loan balances for the ARM for the five-year period. b. Compute the yield for the ARM for the five-year period. Complete this question by entering your answers in the tabs below. Required A Required B Compute the payments and loan balances for the ARM for the five-year period. (Do not round intermediate calculations. Round "Payments" to 2 decimal places and "Loan Balance"…
A borrower can obtain an 80 percent loan with an 9 percent interest rate and monthly payments. The loan is to be fully amortized over 25 years. Alternatively, he could obtain a 95 percent loan at an 9.5 percent rate with the same loan term. The borrower plans to own the property for the entire loan term. Required: a. What is the incremental cost of borrowing the additional funds? (Hint: The dollar amount of the loan does not affect the answer.) b. What is the incremental cost of borrowing the additional funds if 2 points were charged on the 95 percent loan? c. What is the incremental cost of borrowing the additional funds if the borrower planned to own the property for only five years? Complete this question by entering your answers in the tabs below. Required A Required B Required C What is the incremental cost of borrowing the additional funds if the borrower planned to own the years? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Incremental…
Suppose your firm is seeking a four year, amortizing $260,000 loan with annual payments and your bank is offering you the choice between a $268,000 loan with a $8,000 compensating balance and a $260,000 loan without a compensating balance. The interest rate on the $260,000 loan is 9.8 percent. How low would the interest rate on the loan with the compensating balance have to be for you to choose it? (Do not round intermediate calculations and round your final answer to 2 decimal places.) Interest rate %
6. In your search for the best rate of on a new car loan, you note that various lenders quote rates with differing compounding frequencies. your car dealer offers financing at 5 % % compounded monthly. For you to be indifferent as to which lending rate to choose, what would the nominal rate be on a loan from another lender with interest compounded. a) quarterly? b) Semi-annually?
5) A lender is willing to provide financing at a DSCR of 1.25 at 5.0% interest with 25-year monthly amortization on a $225,000 NOI. What are my monthly payments? 6) If the lender in question 5 charges 2 points, what is my cost of financing? 7) Based on question 6, What is my cost of financing if I pay the loan off at the endof year 5? 8) What is the loan balance at the end of year 5?

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