A college student, needs to borrow $5,000 today for his tuition bill. He agrees to pay back the loan in a lump-sum payment 5 years from now, after he is out of college. The bank states that the payment will need to be $7,012.76. If John borrows the $5,000 from the bank, what nominal interest rate is he paying on his loan?

EBK CFIN
6th Edition
ISBN:9781337671743
Author:BESLEY
Publisher:BESLEY
Chapter4: Time Value Of Money
Section: Chapter Questions
Problem 23PROB
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A college student, needs to borrow $5,000 today for his tuition bill. He agrees to pay back the loan in a lump-sum payment 5 years from now,
after he is out of college. The bank states that the payment will need to be $7,012.76. If John borrows the $5,000 from the bank, what nominal
interest rate is he paying on his loan?
O 7.5%
O 7%
O 7.25%
O 8%
Transcribed Image Text:A college student, needs to borrow $5,000 today for his tuition bill. He agrees to pay back the loan in a lump-sum payment 5 years from now, after he is out of college. The bank states that the payment will need to be $7,012.76. If John borrows the $5,000 from the bank, what nominal interest rate is he paying on his loan? O 7.5% O 7% O 7.25% O 8%
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