Corporate Finance
12th Edition
ISBN: 9781259918940
Author: Ross, Stephen A.
Publisher: Mcgraw-hill Education,
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Chapter 4, Problem 62QAP
Summary Introduction
To compute: Rate of interest on 3 points and 2 points, respectively.
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 looking at a one-year loan of $18,000. The interest rate is quoted as 7.4 percent
plus two points. A point on a loan is 1 percent (one percentage point) of the loan amount.
Quotes similar to this one are common with home mortgages. The interest rate quotation
in this example requires the borrower to pay two points to the lender up front and repay
the loan later with 7.4 percent interest.
a. What rate would you actually be paying here? (Do not round intermediate
calculations and enter your answer as a percent rounded to 2 decimal places, e.g.,
32.16.)
b. What is the EAR for a one-year loan with a quoted interest rate of 10.4 percent plus
two points? (Do not round intermediate calculations and enter your answer as a
percent rounded to 2 decimal places, e.g., 32.16.)
a. Interest rate
b. EAR
9.41 %
10.61 %
Is your answer affected by the loan amount?
No
Yes
You are looking at a one-year loan of $20,000. The interest rate is quoted as 10 percent plus 2 points. A point on a loan is simply 1 percent (one percentage point) of the loan amount. Quotes similar to this one are common with home mortgages. The interest rate quotation in this example requires the borrower to pay 2 points to the lender up front and repay the loan later with 10 percent interest.
What rate would you actually be paying here?
You are looking at a one-year loan of $20,000. The interest rate is quoted as 10 percent plus two points. A point on a loan is 1 percent
(one percentage point) of the loan amount. Quotes similar to this one are common with home mortgages. The interest rate quotation in
this example requires the borrower to pay two points to the lender up front and repay the loan later with 10 percent interest. What rate
would you actually be paying here?
Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.
Answer is complete but not entirely correct.
Interest rate
12:00 %
Chapter 4 Solutions
Corporate Finance
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
Ch. 4 - Simple Interest versus Compound Interest First...Ch. 4 - Prob. 2QAPCh. 4 - Prob. 3QAPCh. 4 - Calculating Interest Rates Solve for the unknown...Ch. 4 - Prob. 5QAPCh. 4 - Prob. 6QAPCh. 4 - Prob. 7QAPCh. 4 - Calculating Rates of Return Although appealing to...Ch. 4 - Prob. 9QAPCh. 4 - Prob. 10QAPCh. 4 - Present Value and Multiple Cash Flows Specter Co....Ch. 4 - Prob. 12QAPCh. 4 - Calculating Annuity Present Value An investment...Ch. 4 - Prob. 14QAPCh. 4 - Prob. 15QAPCh. 4 - Prob. 16QAPCh. 4 - Calculating EAR First National Bank charges 11.4...Ch. 4 - Prob. 18QAPCh. 4 - Calculating Number of Periods One of your...Ch. 4 - Prob. 20QAPCh. 4 - Prob. 21QAPCh. 4 - Simple Interest versus Compound Interest First...Ch. 4 - Calculating Annuities You are planning to save for...Ch. 4 - Prob. 24QAPCh. 4 - Prob. 25QAPCh. 4 - Prob. 26QAPCh. 4 - Prob. 27QAPCh. 4 - Prob. 28QAPCh. 4 - Prob. 29QAPCh. 4 - Prob. 30QAPCh. 4 - Calculating Interest Expense You receive a credit...Ch. 4 - Prob. 32QAPCh. 4 - Growing Annuity Southern California Publishing...Ch. 4 - Prob. 34QAPCh. 4 - Prob. 35QAPCh. 4 - Prob. 36QAPCh. 4 - Prob. 37QAPCh. 4 - Calculating Loan Payments You need a 30-year...Ch. 4 - Prob. 39QAPCh. 4 - Prob. 40QAPCh. 4 - Prob. 41QAPCh. 4 - Prob. 42QAPCh. 4 - Prob. 43QAPCh. 4 - Prob. 44QAPCh. 4 - Prob. 45QAPCh. 4 - Prob. 46QAPCh. 4 - Prob. 47QAPCh. 4 - Prob. 48QAPCh. 4 - Prob. 49QAPCh. 4 - Prob. 50QAPCh. 4 - Prob. 51QAPCh. 4 - Prob. 52QAPCh. 4 - Prob. 53QAPCh. 4 - Prob. 54QAPCh. 4 - Prob. 55QAPCh. 4 - Prob. 56QAPCh. 4 - Prob. 57QAPCh. 4 - Prob. 58QAPCh. 4 - Prob. 59QAPCh. 4 - Prob. 60QAPCh. 4 - Prob. 61QAPCh. 4 - Prob. 62QAPCh. 4 - Prob. 63QAPCh. 4 - Prob. 64QAPCh. 4 - Prob. 65QAPCh. 4 - Prob. 66QAPCh. 4 - Prob. 67QAPCh. 4 - Prob. 68QAPCh. 4 - Prob. 69QAPCh. 4 - Prob. 70QAPCh. 4 - Prob. 71QAPCh. 4 - Prob. 72QAPCh. 4 - Prob. 73QAPCh. 4 - Prob. 74QAPCh. 4 - Rule or 69.3 A corollary to the Rule of 72 is the...Ch. 4 - Prob. 1MCCh. 4 - Prob. 2MCCh. 4 - Prob. 3MCCh. 4 - Prob. 4MCCh. 4 - Prob. 5MC
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