Question

Please double check this answer. Also a step-by-step explanation would be appreciated. Thanks.

You are looking at a one-year loan of $16,000. The interest rate is quoted as 7.8 percent plus three points. A point on a loan is 1 percent (one percentage point) of the loan amount. Quotes similar to this one are very 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 7.8 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 10.8 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.) 11.341% a. Interest rate 13.06 % b. EAR Is your answer affected by the loan amount? O No O Yes

Answer 1

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File Home ert Page Layout Formulas Data Review V Add-Ins 義Cut Σ AutoSum , Calibri General aCopy Format Painter Fill В า 프. m. a-Δ. Ξミ 迣锂函Merge & Center. $, % , 弼皛Conditional Format. Cell. Insert Delete Format Paste Sort &Find & Formatting as Table Styles ClearFilter Select Clipboard Font Styles Cells dting Alignment BT462 BN BO BP BR BS BT BU 449 loan 16000 450 451 7.80% rate 452 [16000 x 396] 3 point in $ 480 net loan amount -PV [16000-480] 453 15520 interest payable 1248 [16000 x 7.8%) 17248[16000 1248] 454 FV- loan +interest 455 456 INTEREST RATE ANSWER 11.13% 457 458 loan 16000 459 10.80% rate [16000 x 296] 460 2 points in $ 320 461 net loan amount -PV 15680 [16000 320] 462 interest payable 1728 [16000x 10.8%) 17728 [16000 1728] FV- loan +interest 463 464 465 ANSWER EAR- INTEREST RATE 13.06% 466 467 ANSWER NO, ANSWER IS NOT AFFECTED BY LOAN AMOUNT LOCK BOX DILUTION DOLLAR COST AVGMORTGAGE EXPO APR CP ear FVA Sheet2 111 CAP STRU VALUE 44 LOAN OPTIONS fv, annu MORTGAGE 06:23 옐4L al t@ m木4ø ENG 27-05-2019 "z