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 A; the interest is compounded less frequently. B A; the effective annual rate is 6.07%.

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 A; the interest is compounded less frequently. B A; the effective annual rate is 6.07%.

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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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. %
Find the effective yield on a discount loan with the given discount rate r and the time. (Round your answer to two decimal places.) r = 2%, 2 months
Consider two 1-year loans with a principal of $1 million and a default probability of 2% each. Assume that if one loan defaults, the other does not. Assume that in the event of default, the loan leads to a loss that can take any value between $0 and $1 million with equal probability, i.e., the probability that the loss is higher than $x million is 1-x. If a loan does not default, it yields a profit equal to $0.02 million. a) Compute the 1-year 99% Value at Risk (VaR) and Expected Shortfall (ES) of a single loan. b) Compute the 1-year 99% VaR and ES for the portfolio of both loans. c) Does the VaR and the ES satisfy the subadditivity property in this case?
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What is the true effective annual interest rate of a small loan which states that the interest charged is only 2% per month of the unpaid balance?
Everett's Electronics is receiving a senior bank loan with the following terms: $6MM principal, 5.6% interest rate, 7 year loan term, 0.75% commitment fee, and a 1% closing fee. What is the expected annual return to the lender? A. 5.85% B. 6.85% C. 5.91% D. 6.2%
For a bank loan assuming a one-year repayment period and 14% interest, the monthly payment is S (Round to the nearest cent.) For a bank loan assuming a one-year repayment period and 14% interest, the total cost is $ (Round to the nearest cent For the add-on loan method with one year repayment period and 12% interest, the monthly payment is S (Round to the nearest cent.) For the add-on loan method with one-year repayment period and 12% interest, the total cost is S (Round to the nearest cent If Shirley pays the bank loan back after six months, she will save"S (Round to the nearest cent) If Shirley pays the add-on loan back after six months, she will receive a rebate
Big Dom’s Pawn Shop charges an interest rate of 26.8 percent per month on loans to its customers. Like all lenders, Big Dom must report an APR to consumers. a. What rate should the shop report? (Do not round intermediate calculations and enter your answer as a percent rounded to 1 decimal place, e.g., 32.1.) b. What is the effective annual rate? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

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