Financial Accounting 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.

Step 1: Define Effective Annual Interest Rate (EAR)The effective annual interest rate (EAR) reflects…

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

See similar textbooks

Similar questions

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.
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.
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've borrowed $6,903.71 and agreed to pay back the loan with monthly payments of $270. Assume the interest rate is 15% stated as an APR. a. How long will it take you to pay back the loan? Note: Do not round intermediate calculations. Round your answer to the nearest whole number. Number of months b. What is the effective annual rate on the loan? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Effective annual rate %
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.
To borrow $2,400, you are offered an add-on interest loan at 10.4 percent with 12 monthly payments. Compute the 12 equal payments. Use the amount you borrowed and the monthly payments you computed to calculate the APR of the loan. Then, use that APR to compute the EAR of the loan. Note: Do not round intermediate calculations and round your final answer to 2 decimal places. Equal payment Effective annual rate. %
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 %
= Consider two loans with one-year maturities and identical face values: a(n) 8.4% loan with a 1.03% loan origination fee and a(n) 8.4% loan with a 4.5% (no-interest) compensating balance requirement. Which loan would have the higher effective annual rate? Why? The EAR in the first case is%. (Round to one decimal place.) er cl

SEE MORE QUESTIONS

Recommended textbooks for you

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

SEE MORE TEXTBOOKS