Discount loan. Up-Front Bank uses discount loans for all its customers who want one-year loans. Currently, the bank is providing one-year discount loans at 8.5%. What is the effective annual rate on these loans? If you were required to repay $225,000 at the end of the loan for one year, how much would the bank have given yor at the start of the loan?

Discount loan. Up-Front Bank uses discount loans for all its customers who want one-year loans. Currently, the bank is providing one-year discount loans at 8.5%. What is the effective annual rate on these loans? If you were required to repay $225,000 at the end of the loan for one year, how much would the bank have given yor at the start of the loan?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 19P

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Cost of Bank Loan Mary Jones recently obtained an equipment loan from a local bank. The loan is for 15,000 with a nominal interest rate of 11%. However, this is an installment loan, so the bank also charges add-on interest. Mary must make monthly payments on the loan, and the loan is to be repaid in 1 year. What is the effective annual rate on the loan (assuming a 365-day year)?
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