The following are three one year \"discount\" loans that a bank might offer to t

Question

The following are three one year "discount" loans that a bank might offer to the customer.

Loan A: 230,000. at a 6% discount rate

Loan B: 220,000. at a 6.25 percent discount rate

Loan C: 225,000. at a 6.5 percent discount rate

a). Determine the amount of interest the bank would make on each loan and indicate the amont of net proceeds that the bank would pay our on each loan.

b). On which loan would the customer receive the most proceeds?

c). Calculate the percent interest rate (APR) or effective cost of each loan.

Which one has the lowest cost?

Explanation / Answer

a) Amount of interest on Loan A= 230000*6% = 13800 Net proceeds the bank would pay =    230000-13800 = 216200 Amount of interest on Loan B= 220000*6.25% = 13750 Net proceeds the bank would pay =    220000-13750 = 206250 Amount of interest on Loan C= 225000*6.5% = 14625 Net proceeds the bank would pay =    225000-14625 = 210375 b). The customer receive the most proceeds on Loan A - $ 216200 c)Effective cost of Loan A 13800/216200 0.063829787 ie. 6.38%      Effective cost of Loan B 13750/206250 0.066666667 ie.6.67%       Effective cost of Loan C 14625/210375 0.069518717 ie. 6.95% Loan A has the lowest cost of 6.38%

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.