CORPORATE FINANCE--CONNECT ACCESS CARD
12th Edition
ISBN: 9781264331062
Author: Ross
Publisher: MCG CUSTOM
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Chapter 4, Problem 60QAP
Summary Introduction
To compute: Annual rate of interest.
Introduction: Investors invest in bonds to ensure regular income (interest income) on their investments. Bondholders are the investors who are risk averse.
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In a discount interest loan, you pay the interest payment up front. For example, if a 1-year loan is stated as $42,000 and the interest rate is 8.50%, the borrower “pays” 0.0850 × $42,000 = $3,570 immediately, thereby receiving net funds of $38,430 and repaying $42,000 in a year.
a. What is the effective interest rate on this loan? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
b. What is the effective annual rate on a 1-year loan with an interest rate quoted on a discount basis of 18.50%? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
You want to buy a $200000 home. You plan to pay $20000 as a down payment, and take out a 20 year loan
at 5.25% interest for the rest.
a) What is the amount of the payment?
$
b) If the bank charges 1.5 points on the loan, what is the amount charged for points?
$
c) If the bank charges 1.5 points on the loan, what is the true interest rate?
$
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7. Calculating finance charges using the discount method and APRon a single-payment loan
You are taking out a single-payment loan that uses the discount method to compute the finance charges. Computing the finance charges is done the way they’re computed using the simple interest method. Under the discount method, a borrower receives the principal the finance charges. For example, if the principal is $8,000 and the finance charges are $720, the borrower will receive $ .
The following equation computes the finance charges on your loan:
FdFd = FsFs = P r t
In the equation, FdFd is the finance charge for the loan. What are the other values?
P is the amount of the loan.
r is the stated rate of interest.
t is the term of the loan in .
You’re borrowing $6,000 for a year and a half with a stated annual interest rate of 6%. Complete the following table. (Note: Round your answers to the nearest dollar.)
Principal…
Chapter 4 Solutions
CORPORATE FINANCE--CONNECT ACCESS CARD
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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- You want to buy a $190000 home. You plan to pay $19000 as a down payment, and take out a 15 year loan at 4.25% interest for the rest.a) What is the amount of the payment?$b) If the bank charges 2 points on the loan, what is the amount charged for points?$c) If the bank charges 2 points on the loan, what is the true interest rate?$ TVM SOLVERarrow_forward(Q) You would like to purchase a home and are interested to find out how much you can borrow. When your lender calculates your debt to income ratio, he determines that your maximum monthly payment can be no more than $3, 200. You would like to have a 30 year fully amortizing loan and the interest rate offered on such a loan is currently 8.5%. Given these constraints, what is the largest loan you can obtain?arrow_forwardYou want to borrow $1,000 at an interest rate of 10%. The most expensive method of calculating the dollar cost of the interest on this installment loan will be? add on, discount, simple interest or declining balance method?arrow_forward
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