Your firm is considering two one-year loan options for a $455,000 loan. The firs

Question

Your firm is considering two one-year loan options for a $455,000 loan. The first carries fees of 1.9% of the loan amount and charges interest of 3.7% of the loan amount. The other carries fees of 1.5% of the loan amount and charges interest of 4.3% of the loan amount. a. What is the net amount of funds from each loan? b. Based on the net amount of funds, what is the true interest rate of each loan?

a. What is the net amount of funds from each loan? The net amount of funds for option 1 is $_____. (Round to the nearest dollar.)

The net amount of funds for option 2 is $______. (Round to the nearest dollar)

b. Based on the net amount of funds, what is the true interest rate of each loan? The true interest for loan 1 will be ______%. (Round to three decimal places.)

The true interest for loan 2 will be _______%. (Round to three decimal places.)

Explanation / Answer

a) Net amount of funds from each loan Loan 1 Loan 2 Loan amount 455000 455000 (-) Loan processing fee 8645 6825 (455000*1.9%) (455000*1.5%) (-) Interest amount 16835 19565 (455000*3.7%) (455000*4.3%) Net amount of funds 429520 428610 b) True interest rate of each loan Loan 1 Loan 2 Net amount of funds 429520 428610 (-) Interest amount 16835 19565 (455000*3.7%) (455000*4.3%) True interest rate 3.92% 4.56% (16835/429520) (19565/428610)

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