Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 27, Problem 9P
Which of the following one-year $1000 bank loans offers the lowest effective annual rate?
- a. A loan with an APR of 6%, compounded monthly
- b. A loan with an APR of 6%, compounded annually, that also has a compensating balance requirement of 10% (on which no interest is paid)
- c. A loan with an APR of 6%, compounded annually, that has a 1% loan origination fee
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
A payday loan is structured to obscure the true interest rate you are paying. For example, in Washington, you pay a
$30
"fee" for a two-week
$200
payday loan (when you repay the loan, you pay
$230).
What is the effective annual interest rate for this loan?
(Assume
26 bi-weekly periods per year.)
The effective annual interest rate is _________________%
%.(Round to two decimal places.)
A person borrows $3,000 on a bank credit card at a nominalrate of 18% per year, which is actually charged at a rate of1.5% per month.
a. What is the annual percentage rate (APR) for the card?(See Example 5.6.8 for a definition of APR.)
b. Assume that the person does not place any additionalcharges on the card and pays the bank $150 eachmonth to pay off the loan. Let Bn be the balance owedon the card after n months. Find an explicit formulafor Bn .
c. How long will be required to pay off the debt?
d. What is the total amount of money the person will havepaid for the loan?
If you could please answer b and d for me I put the other 2 questions there in cases they where somehow apart of b and d
Determine the annual financing cost of a 1-year (365 day), $9,000 discounted bank loan at a stated annual interest rate of 10.0 percent. Assume that no compensating balance is required. Round your answer to two decimal places.
%
Chapter 27 Solutions
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Ch. 27.1 - Prob. 1CCCh. 27.1 - What is the effect of seasonalities on short-term...Ch. 27.2 - Prob. 1CCCh. 27.2 - What is the difference between temporary and...Ch. 27.3 - Prob. 1CCCh. 27.3 - Describe common loan stipulations and fees.Ch. 27.4 - What is commercial paper?Ch. 27.4 - How is interest paid on commercial paper?Ch. 27.5 - Prob. 1CCCh. 27.5 - What is the difference between a floating lien and...
Ch. 27 - Prob. 1PCh. 27 - Sailboats Etc. is a retail company specializing in...Ch. 27 - What is the difference between permanent working...Ch. 27 - Quarterly working capital levels for your firm for...Ch. 27 - Prob. 5PCh. 27 - Prob. 6PCh. 27 - Prob. 7PCh. 27 - Prob. 8PCh. 27 - Which of the following one-year 1000 bank loans...Ch. 27 - The Needy Corporation borrowed 10,000 from Bank...Ch. 27 - Prob. 11PCh. 27 - Prob. 12PCh. 27 - Prob. 13PCh. 27 - The Signet Corporation has issued four-month...Ch. 27 - Prob. 15PCh. 27 - Prob. 16PCh. 27 - Prob. 17PCh. 27 - Prob. 18P
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Calculating interest and APR of installment loan. Assuming that interest is the only finance charge, how much interest would be paid on a 5,000 installment loan to be repaid in 36 monthly installments of 166.10? What is the APR on this loan?arrow_forwardBank A offers loans at an 8% nominal rate (its APR) butrequires that interest be paid quarterly; that is, it uses quarterly compounding. Bank Bwants to charge the same effective rate on its loans, but it wants to collect interest ona monthly basis, that is, to use monthly compounding. What nominal rate must BankB set?arrow_forwardYou borrow $1,000 from the bank and agree to repay the loan over the next year in 12 equal monthly payments of $90. However, the bank also charges you a loan initiation fee of $18, which is taken out of the initial proceeds of the loan. What is the effective annual interest rate on the loan, taking account of the impact of the initiation fee? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Use a financial calculator or Excel. Effective annual interest rate 1.49 %arrow_forward
- A payday loan company charges a $25 fee for a $550 payday loan that will be repaid in 14 days using ordinary simple interest.Treating the fee as interest paid, what is the equivalent annual interest rate?arrow_forwardCan you complete parts a through d for me?arrow_forwardWhat are the repayment schedules for each of the following five-year, 8 percent $13,000 term loans? Use Appendix D to answer the questions. Do not leave any cells blank. If the answer is zero, enter "0". Do not round intermediate calculations. Equal annual payments that amortize (retire) the principal and pay the interest owed on the declining balance. Round your answers to the nearest cent. Year Interestpayment Principalrepayment Balanceon loan 1 $ $ $ 2 $ $ $ 3 $ $ $ 4 $ $ $ 5 $ $ $ Equal annual principal repayment, with interest calculated on the remaining balance owned. Round your answers to the nearest dollar. Year Interestpayment Principalrepayment Balanceon loan 1 $ $ $ 2 $ $ $ 3 $ $ $ 4 $ $ $ 5 $ $ $ No principal repayment until after five years, with interest paid annually on the balance owned. Round your answers…arrow_forward
- A customer repays a loan of 22,000 that has an effective annual interest rate of 5.15% by making payments of 2,200 at the end of each year for 11 years, followed by payments of 1,000 at the end of each year for as long as necessary, until a final payment of X of less than 1,000, made one year after the last regular payment of 1,000, repays the loan. Find X. a) 208 b) 295 c) 381 d) 468 e) 555arrow_forwardTo obtain net loans from gross loans the following items must be subtracted: a. reserve for loan losses b. unearned income c. all loans in arrears d. unearned income and reserve for loan losses Assume quarterly-payments of $3,000 loan for one year at 8 percent. The APR is a. 8.24 percent b. none of the above c. 10.24 percent d. 12.42 percent Loans made to closely held firms should have a. collateral b. relationship pricing c. pro-forma statements d. guarantees of the principalsarrow_forwardConsider a 4-year amortizing loan. You borrow $2,400 initially and repay it in four equal annual year-end payments. a. If the interest rate is 10%, what is the annual payment? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Annual payment $ ✓Answer is complete and correct. Time b. Prepare an amortization schedule. Note: Do not round intermediate calculations. Round your answers to 2 decimal places. Leave no cells blank - be certain to enter "0" wherever required. 1 2 3 4 Loan Balance (S) 2,400.00 2,400.00 757.13 1,882.87 x 1,314.03 688 Answer is complete but not entirely correct. Year-End Interest Due on Loan Balance (5) 240.00 188.29 131.40 68.83 Total Year- End Payment ($) 10 757.13 757.13 757.13 757.13 Amortization of Loan (S) 0 517.13 568.84 625.73 688.30arrow_forward
- The York Company has arranged a line of credit that allows it to borrow up to $45 milion at any time. The interest rate is .621 percent per month. Additionally, the company must deposit 3 percent of the amount borrowed in a non-interest bearing account. The bank uses compound interest on its line-of-credit loans. What is the effective annual rate on this line of credit? Multiple Choices 6.40% 7.71% 7.95% 7.06% 8.83%arrow_forwardYour company are offered a bank loan with an annual percentage ate (APR) of 5 percent with quarterly compounding. What is the effective annual rate (EAR) on this loan? (Answers are rounded to two decimals) a) 5.00 % b) 21.55 % c) 5.09 % d) 1.25 % e) 105.09 %arrow_forwardA lender makes a loan of $100,000 at a 6% interest rate for 25 years with monthly payments. The lender will require an origination fee of $1,000 and will also discount the loan by some amount. Suppose the lender discounts the loan by the amount calculated in the last question. What is the annual percentage rate (APR) on this loan? a. 5.45% b. 6.00% c. 6.11% d.6.20% e. 6.65% Assume the borrower repays the loan after 8 years. What is the effective borrowing cost (EBC) on this loan? a. 6.10 b. 6.17 c. 6.33 d. 6.50 e. 6.84arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
Pfin (with Mindtap, 1 Term Printed Access Card) (...FinanceISBN:9780357033609Author:Randall Billingsley, Lawrence J. Gitman, Michael D. JoehnkPublisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Pfin (with Mindtap, 1 Term Printed Access Card) (...
Finance
ISBN:9780357033609
Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher:Cengage Learning
What Does ROI (Return On Investment) Really Mean?; Author: REtipster;https://www.youtube.com/watch?v=Z6ThJvNr1Dw;License: Standard Youtube License