HomeworkLib
Question

You want to borrow $10,000 from a local bank, which is to be repaid in 2...

You want to borrow $10,000 from a local bank, which is to be repaid in 2 equal semiannual
installments. The loan officer initially offered an interest rate of 12% compounded monthly.
However, you were able to negotiate that interest be compounded semiannually instead of
monthly. With this negotiation, how much do you save in total interest payments over the loan
life?

business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

Compound interest formula:

FV = P (1+r/n)(nt)

When interest is calculated as compounded monthly:

P = $10000, r = 12%, n = 1 year, t = 12 times

Putting all the values in the formula, we get:

Interest = $1268.25 and Loan amount to be repaid = $11268.25

When interest is calculated as compounded semiannually:

P = $10000, r = 12%, n = 1 year, t = 2 times

Interest = $1236 and loan amount to be repaid = $11236

Saving on interest (Difference) : 11268.25 - 11236 = 32.25

0 0
Add a comment
Know the answer?
Add Answer to:
You want to borrow $10,000 from a local bank, which is to be repaid in 2...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • 2. (10 pts) You borrow $40,000 from the local bank at 5% APR, compounded monthly on...

    2. (10 pts) You borrow $40,000 from the local bank at 5% APR, compounded monthly on a 6-year loan but you want to pay for the loan with payments every four months. (a) What is your effective interest on your 4-month payment? (b) What is your payment made every four months? (c) What is the APY for your loan with your payments??

  • You want to borrow £98,000 from your local bank to buy a new yacht. You can...

    You want to borrow £98,000 from your local bank to buy a new yacht. You can afford to make monthly payments of £2,000, but no more. Assuming monthly compounding, what is the highest rate you can afford on a 60-month loan?

  • You want to borrow $90,000 from your local bank to buy a new sailboat. You can...

    You want to borrow $90,000 from your local bank to buy a new sailboat. You can afford to make monthly payments of $1,700, but no more. Assuming monthly compounding, what is the highest rate you can afford on a 60-month APR loan? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) interest rate %

  • You want to borrow $86,000 from your local bank to buy a new sailboat. You can...

    You want to borrow $86,000 from your local bank to buy a new sailboat. You can afford to make monthly payments of $1,500, but no more. Assuming monthly compounding, what is the highest rate you can afford on a 72-month APR loan? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Interest rate 7.81+4%) %

  • You want to borrow $69,000 from your local bank to buy a new car. You can...

    You want to borrow $69,000 from your local bank to buy a new car. You can afford to make monthly payments of $1,200, but no more. Assuming monthly compounding, what is the highest rate you can afford on a 78 month APR loan? Please show all work and calculations.

  • You want to borrow $100,000 from your local bank to buy a new sailboat. You can...

    You want to borrow $100,000 from your local bank to buy a new sailboat. You can afford to make monthly payments of $1,750, but no more. Assuming monthly compounding, what is the highest rate you can afford on a 72-month APR loan? Please show steps for full credit

  • Question 3. You want to borrow $100,000 from your local bank to buy a new sailboat....

    Question 3. You want to borrow $100,000 from your local bank to buy a new sailboat. You can afford to make monthly payments of $1,750, but no more. Assuming monthly compounding, what is the highest rate you can afford on a 72-month APR loan? Question 4. A local finance company quotes an interest rate of 25 percent on one-year loans. So, if you borrow $30,000, the interest for the year will be $7,500. Because you must repay a total of...

  • You want to borrow $98,000 from your local bank to buy a new sailboat. You can...

    You want to borrow $98,000 from your local bank to buy a new sailboat. You can afford to make monthly payments of $2,100, but no more. Assuming monthly compounding, what is the highest rate you can afford on a 54-month APR loan? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

  • 5. Bank loans Short-term financing through bank loans Consider this case: Central Corp. needs to take...

    5. Bank loans Short-term financing through bank loans Consider this case: Central Corp. needs to take out a one-year bank loan of $500,000 and has been offered loan terms by two different banks. One bank has offered a simple interest loan of 9% that requires monthly payments. The loan principal will be paid back at the end of the year. Another bank has offered 6% add-on interest to be repaid in 12 equal monthly installments. Based on a 360-day year,...

  • need the answer as soon as possible with the steps You borrow $20,000 from a bank...

    need the answer as soon as possible with the steps You borrow $20,000 from a bank to be repaid in monthly installments for 3 years at 9% interest compounded monthly. What is the interest portion of the 8th payment? Group of answer choices A/$88 B/$124 C/$84 D/$150

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT