You are looking at a one-year loan of $12,000. The interest rate
is quoted as 8 percent plus three 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 three points to the lender up front and repay the loan later
with 8 percent interest.
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.)
Interest rate
%
Actual funds received = 12000*(1-0.03) = 11640
Interest = 8%*12000 = 960
actual Rate paid = 960/11640 * 100
= 8.25%
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