Hanie Najwa needs to borrow RM5,000 for one year. • Option A: She is offered a loan at an effective annual rate of 5% • Option B: She is offered a loan of RM10,000 at a lower effective annual rate of interest denoted by i. If she borrows of RM10,000, she can invest the excess RM5,000 for one year at 3%. How low must the rate on the RM10,000 loan (Option B) be in order for Hanie Najwa to prefer it to the RM5,000 loan (Option A)?
Hanie Najwa needs to borrow RM5,000 for one year. • Option A: She is offered a loan at an effective annual rate of 5% • Option B: She is offered a loan of RM10,000 at a lower effective annual rate of interest denoted by i. If she borrows of RM10,000, she can invest the excess RM5,000 for one year at 3%. How low must the rate on the RM10,000 loan (Option B) be in order for Hanie Najwa to prefer it to the RM5,000 loan (Option A)?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Hanie Najwa needs to borrow RM5,000 for one year.
• Option A: She is offered a loan at an effective annual rate of 5%
• Option B: She is offered a loan of RM10,000 at a lower effective annual rate of interest denoted by i. If she borrows of RM10,000, she can invest the excess RM5,000 for one year at 3%.
How low must the rate on the RM10,000 loan (Option B) be in order for Hanie Najwa to prefer it to the RM5,000 loan (Option A)?
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