Corporate Finance (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
11th Edition
ISBN: 9780077861759
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Chapter 4, Problem 47QP
Summary Introduction
To Compute: The effective annual rate.
Purchasing power refers to the ability of a person to buy something. Purchasing power decreases with increase in inflation and increase with decrease in inflation.
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A local finance company quotes a 17 percent interest rate on one-year loans. So, if you borrow $30,000, the interest for the year will be $5,100. Because you must repay a total of $35,100 in one year, the finance company requires you to pay $35,100/12, or $2,925.00, per month over the next 12 months.
a. What rate would legally have to be quoted?
b. What is the effective annual rate?
A local finance company quotes an interest rate of 16.7 percent on one-year loans. So, if you borrow $25,000, the interest for the year will be $4,175. Because you must repay a total of $29,175 in one year, the finance company requires you to pay $29,175/12, or $2,431.25 per month over the next 12 months. Is the interest rate on this loan 16.7 percent? What rate would legally have to be quoted? What is the effective annual rate?
A local finance company quotes an interest rate of 15.6 percent on one-
year loans. So, if you borrow $36,000, the interest for the year will be
$5,616. Because you must repay a total of $41,616 in one year, the finance
company requires you to pay $41,616/12, or $3,468.00 per month over the
next 12 months.
a. What rate would legally have to be quoted?
Note: 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 effective annual rate?
Note: Do not round intermediate calculations and enter your
answer as a percent rounded to 2 decimal places, e.g., 32.16.
a. APR
b. EAR
%
%
Chapter 4 Solutions
Corporate Finance (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 4 - Prob. 1CQCh. 4 - Prob. 2CQCh. 4 - Prob. 3CQCh. 4 - Prob. 4CQCh. 4 - Time Value On subsidized Stafford loans, a common...Ch. 4 - Prob. 6CQCh. 4 - Prob. 7CQCh. 4 - Prob. 8CQCh. 4 - Prob. 9CQCh. 4 - Prob. 10CQ
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