Corporate Finance
12th Edition
ISBN: 9781259918940
Author: Ross, Stephen A.
Publisher: Mcgraw-hill Education,
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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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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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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?$c) If the bank charges 2 points on the loan, what is the true interest rate?$
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Chapter 4 Solutions
Corporate Finance
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