Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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Textbook Question
Chapter 27, Problem 9P
Which of the following one-year $1000 bank loans offers the lowest effective annual rate?
- a. A loan with an APR of 6%, compounded monthly
- b. A loan with an APR of 6%, compounded annually, that also has a compensating balance requirement of 10% (on which no interest is paid)
- c. A loan with an APR of 6%, compounded annually, that has a 1% loan origination fee
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Consider a 48 month amortizing car loan with 6% APR and monthly payments. Which of the following statements is FALSE about that loan?
A. The monthly payment includes both interest and principal.
B. Interest portion of the payment equals loan balance times monthly interest rate.
C. The monthly interest rate charged on the loan is 0.5%.
D. The effective annual rate on that loan is less than 6%.
A person borrows $3,000 on a bank credit card at a nominalrate of 18% per year, which is actually charged at a rate of1.5% per month.
a. What is the annual percentage rate (APR) for the card?(See Example 5.6.8 for a definition of APR.)
b. Assume that the person does not place any additionalcharges on the card and pays the bank $150 eachmonth to pay off the loan. Let Bn be the balance owedon the card after n months. Find an explicit formulafor Bn .
c. How long will be required to pay off the debt?
d. What is the total amount of money the person will havepaid for the loan?
If you could please answer b and d for me I put the other 2 questions there in cases they where somehow apart of b and d
A payday loan is structured to obscure the true interest rate you are paying. For example, in Washington, you pay a
$30
"fee" for a two-week
$200
payday loan (when you repay the loan, you pay
$230).
What is the effective annual interest rate for this loan?
(Assume
26 bi-weekly periods per year.)
The effective annual interest rate is _________________%
%.(Round to two decimal places.)
Chapter 27 Solutions
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Ch. 27.1 - Prob. 1CCCh. 27.1 - What is the effect of seasonalities on short-term...Ch. 27.2 - Prob. 1CCCh. 27.2 - What is the difference between temporary and...Ch. 27.3 - Prob. 1CCCh. 27.3 - Describe common loan stipulations and fees.Ch. 27.4 - What is commercial paper?Ch. 27.4 - How is interest paid on commercial paper?Ch. 27.5 - Prob. 1CCCh. 27.5 - What is the difference between a floating lien and...
Ch. 27 - Prob. 1PCh. 27 - Sailboats Etc. is a retail company specializing in...Ch. 27 - What is the difference between permanent working...Ch. 27 - Quarterly working capital levels for your firm for...Ch. 27 - Prob. 5PCh. 27 - Prob. 6PCh. 27 - Prob. 7PCh. 27 - Prob. 8PCh. 27 - Which of the following one-year 1000 bank loans...Ch. 27 - The Needy Corporation borrowed 10,000 from Bank...Ch. 27 - Prob. 11PCh. 27 - Prob. 12PCh. 27 - Prob. 13PCh. 27 - The Signet Corporation has issued four-month...Ch. 27 - Prob. 15PCh. 27 - Prob. 16PCh. 27 - Prob. 17PCh. 27 - Prob. 18P
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- Bank A offers loans at an 8% nominal rate (its APR) butrequires that interest be paid quarterly; that is, it uses quarterly compounding. Bank Bwants to charge the same effective rate on its loans, but it wants to collect interest ona monthly basis, that is, to use monthly compounding. What nominal rate must BankB set?arrow_forwardYou borrow $1,000 from the bank and agree to repay the loan over the next year in 12 equal monthly payments of $90. However, the bank also charges you a loan initiation fee of $18, which is taken out of the initial proceeds of the loan. What is the effective annual interest rate on the loan, taking account of the impact of the initiation fee? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Use a financial calculator or Excel. Effective annual interest rate 1.49 %arrow_forward7. The remainder on a home loan is refinanced by a bank. The refinanced loan is a 15-year loan for $176,200 scheduled to be paid off using monthly payments. The annual percentage rate for the loan is 3.15% a. Identify the APR for this loan in decimal form. Use four decimal place accuracy. b. Identify the number of payments per year used in the loan payment formula. C. Calculate the monthly payment required to pay off this loan. d. Calculate the total amount of all the payments required to pay off this loan. e. Calculate the total amount paid towards interest after the loan is paid off. f. Calculate the percentage of the total amount that is paid towards interest.arrow_forward
- A payday loan company charges a $40 fee for a $450 payday loan that will be repaid in 11 days using ordinary simple interest.Treating the fee as interest paid, what is the equivalent annual interest rate?arrow_forwardWhat are the repayment schedules for each of the following five-year, 8 percent $13,000 term loans? Use Appendix D to answer the questions. Do not leave any cells blank. If the answer is zero, enter "0". Do not round intermediate calculations. Equal annual payments that amortize (retire) the principal and pay the interest owed on the declining balance. Round your answers to the nearest cent. Year Interestpayment Principalrepayment Balanceon loan 1 $ $ $ 2 $ $ $ 3 $ $ $ 4 $ $ $ 5 $ $ $ Equal annual principal repayment, with interest calculated on the remaining balance owned. Round your answers to the nearest dollar. Year Interestpayment Principalrepayment Balanceon loan 1 $ $ $ 2 $ $ $ 3 $ $ $ 4 $ $ $ 5 $ $ $ No principal repayment until after five years, with interest paid annually on the balance owned. Round your answers…arrow_forwardTo obtain net loans from gross loans the following items must be subtracted: a. reserve for loan losses b. unearned income c. all loans in arrears d. unearned income and reserve for loan losses Assume quarterly-payments of $3,000 loan for one year at 8 percent. The APR is a. 8.24 percent b. none of the above c. 10.24 percent d. 12.42 percent Loans made to closely held firms should have a. collateral b. relationship pricing c. pro-forma statements d. guarantees of the principalsarrow_forward
- Calculating the APR on simple interest and discount loans. Find the finance charges on a 6.5 percent, 18-month, single-payment loan when interest is computed using the simple interest method. Find the finance charges on the same loan when interest is computed using the discount method. Determine the APR in each case. Assume a loan ammount of $1000arrow_forwardA customer repays a loan of 22,000 that has an effective annual interest rate of 5.15% by making payments of 2,200 at the end of each year for 11 years, followed by payments of 1,000 at the end of each year for as long as necessary, until a final payment of X of less than 1,000, made one year after the last regular payment of 1,000, repays the loan. Find X. a) 208 b) 295 c) 381 d) 468 e) 555arrow_forwardYour company are offered a bank loan with an annual percentage ate (APR) of 5 percent with quarterly compounding. What is the effective annual rate (EAR) on this loan? (Answers are rounded to two decimals) a) 5.00 % b) 21.55 % c) 5.09 % d) 1.25 % e) 105.09 %arrow_forward
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