Question

Calculating Interest Round answers to two decimal places. Where calculations are required you should show your work to help you during the quiz. 1. $1,000 borrowed for 2 months at a 9% APR will generate interest income for the lender and expense for the borrower of 2. $5,000 lent for 6 months at 11% APR will generate interest income of 3. $6,000 borrowed for 6 days at 8% APR will generate interest expense of $ 4. $12,500 loaned for one year with a 6% APR will generate interest income of $ 5. When buying a new copier, the dealer offers you a financing arrangement on the $27,450 you need to borrow to make the purchase. The offer includes a choice of 0% APR interest for 12 months or a $4,000 rebate off of the $27,450. If you take the 0% loan you give up the rebate to the dealer. If you take the rebate you cannot have the 0% loan, but instead are offered an 8% APR loan for 9 months. A condition of the rebate is that you must use the dealer to finance the purchase. Alternatively, your local bank offers you 4% APR interest on the equipment loan for 12 months. The loan terms from each party are that the principal and all interest will be paid in the specified time from the date of sale as a lump sum. For A., B. and C. determine the "cost"; that is the amount of cash paid out of pocket. A. The 0% loan will cost: B. The 4,000 rebate offer with borrowing at 8% cost is: C. The local bank loan will cost: Which offer should you take? State your choice and show the total cash outlay that will be required:

Answer 1

The answer has been presented in the supporting sheet. All the parts has been solved with detailed explanation and format. For detailed answer refer to the supporting sheet.

A B C 1 Answer 2 Part 1) 3 Interest income for lender and interest expense for borrower 4 = amount * 2/12* APR 5 = 1000*2/12*9% 6 = $ 15 7 Thus the correct answer is $ 15 9 Part 2) 10 Interest income 11 = amount *6/12*APR 12 = 5000*6/12*11% 13 = $ 275 14 Thus the correct answer is $ 275 15 16 Part 3) 17 Interest expense 18 = amount *8/365*APR 19 = 6000*8/365*8% 20 = $ 10.52 21 Thus the correct answer is $ 10.52 22

3 Part 4) 4 Interest income 5 = amount of loan * APR 6 = 12500*6% 7 = $ 750 9 Thus the correct answer is $ 750 1 For any help please comment in the comment box 2 Thank You