Need help with this accounting question You are considering two loans. The terms of the two loans are equivalent withthe exception of the interest rates. Loan A offers a rate of 9.25 percent,compounded semi-annually. Loan B offers a rate of 9.1 percent, compoundeddaily. Which loan should you select and why?a. B; the annual percentage rate is 9.10 percentb. A; the annual percentage rate is 9.25 percentc. B; the effective annual rate is 9.53 percentd. A; the effective annual rate is 9.46 percent.e. The loans are equivalent offers so you can select either one.

To determine which loan is better, we need to compare the Effective Annual Rate (EAR) for both…

Answered: You are considering two loans. The…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 11P

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If you borrow $9,983 and are required to pay back the loan in five equal annual installments of $2,500, what is the interest rate associated with the loan? Use Appendix D or a financial calculator to solve this problem. (Round your answer to the nearest whole percent.
(a) Determine the effective rate of interest for 4.275% compounded semiannually. Round your final answer to 3 decimal places. (b) Determine the effective rate of interest for 4.25% compounded continuously. Round your final answer to 3 decimal places. (c) If offered a loan at 4.275% compounded semiannually and a loan at 4.25% compounded continuously, which loan would you take? You must use your responses from parts (a) and (b) to explain your reasoning.
Find the APR of the loan given the amount of the loan the number and types of payment in the add-on interest-rate. Loan amount $15,000; three-year payments; rate equals 11%. The annual percent rate is?
Financial Accounting
You can obtain a loan of $200000 at a rate of 15 percent for two years. You have a choice of (i) paying the interest (15 percent) each year and the total principal at the end of the second year or (ii) amortising the loan, that is, paying interest (15 percent) and principal in equal payments each year. The loan is priced at par. a. What is the duration of the loan under both methods of payment? b. Explain the difference in the two results
You are looking at a one-year loan of $18,000. The interest rate is quoted as 7.4 percent plus two points. A point on a loan is 1 percent (one percentage point) of the loan amount. Quotes similar to this one are common with home mortgages. The interest rate quotation in this example requires the borrower to pay two points to the lender up front and repay the loan later with 7.4 percent interest. a. What rate would you actually be paying here? (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 EAR for a one-year loan with a quoted interest rate of 10.4 percent plus two points? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Interest rate b. EAR 9.41 % 10.61 % Is your answer affected by the loan amount? No Yes
A loan is to be amortized by n level annual payments of X where n > 5. You are given (1) The amount of interest in the first payment is 604.00 (2) The amount of interest in the third payment is 593.75 (3) The amount of interest in the fifth payment is 582.45 Calculate X.
You are offered two different loans with identical terms, except the interest rates are different. Loan A has a rate of 6% compounded monthly and Loan B has a rate of 5.9% compounded weekly. Loan is better because A B C D A; the interest is compounded less frequently. A; the effective annual rate is 6.07%. B; the effective annual rate is 6.07%. B; the annual percentage rate is lower.
In a discount interest loan, you pay the interest payment up front. For example, if a 1-year loan is stated as $34,000 and the interest rate is 9.50%, the borrower “pays” 0.0950 × $34,000 = $3,230 immediately, thereby receiving net funds of $30,770 and repaying $34,000 in a year. A. What is the effective interest rate on this loan? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) B. What is the effective annual rate on a 1-year loan with an interest rate quoted on a discount basis of 19.50%? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
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.)
You are given a loan on which interest is charged over a 4-year period, as follows:i. an effective rate of discount of 6% for the first year;ii. a nominal rate of discount of 4% compounded quarterly for the second year;iii. a nominal rate of interest of 5% compounded semiannually for the third year; andiv. a force of interest of 5% for the fourth year.Calculate the annual effective rate of interest over the 4-year period.
You are looking at a one-year loan of $10,000. The Interest rate is quoted as 9.7 percent plus two points. A point on a loan is 1 percent (one percentage point) of the loan amount. Quotes similar to this one are common with home mortgages. The Interest rate quotation in this example requires the borrower to pay two points to the lender up front and repay the loan later with 9.7 percent Interest. What rate would you actually be paying here? Note: Do not round Intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. Interest rate %

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