GEN CMB LL CORP FINC; CNCT
11th Edition
ISBN: 9781259724145
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 60QP
Summary Introduction
To discuss: The correctness in the data given.
Discount Interest:
This interest rate is used for discounting cash flow analysis. It determines respective present values for future cash flows. The rate is charged in commercial banks.
Loan:
Loan is the amount which is taken from another person with the promise of future payment.
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You are taking out a single-payment loan that uses the simple interest method to compute the finance charge. You need to figure out what your payment will be when the loan comes due. The equation to calculate the finance charge is:
FsFs = Amount of Loanx Interest Ratex Term of Loan
where FsFs is the finance charge for the loan, and the term of the loan is in .
You’re borrowing $10,000 for two years with a stated annual interest rate of 6%.
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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(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?
Chapter 4 Solutions
GEN CMB LL CORP FINC; CNCT
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