you just borrowed connect. FINANCE Brealey Fun Midterm (Check your work can only
ID: 2652288 • Letter: Y
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you just borrowed connect. FINANCE Brealey Fun Midterm (Check your work can only be used ONCE per question for a 5% deduction in q uestionpointmeom Question 9 (of 32) 4.00 polnts You ust borowed 5100,000 to buy a condo. You will lepay the loan in equal monthly payments of s804 62 over the next 30 years a. What morthly interest rate are you paying on the loan? (Do not round intermediate calculations. Round your answer to 2 decirmal places.) Monthly interest rate 7.48 b. What is the effective annual rate on that loan? tt wat s to ahechne ? Do not roundintermediate calcoulstions. Round your answer to 2 decimal places.) Effective annual rate c. What rate i is the lender more likely to quote on the loan? (Do not round intermediate calculations.) Lender more likely to quote 748%Explanation / Answer
Answer:
a. Calculation of Monthly interest rate on loan :
Using the formula :
PV = Installments * PVF
PVF = PV / Installments
=100000 /804.62
PVF = 124.2823
Now looking for PVF for 30*12 = 360 Periods we get rate = 0.75%
Hence Monthly interest rate is 0.75%
b. Calculation of Effective annual rate
Effective Annual rate = (1+monthly rate)^12 -1
= (1+0.0075)^12 -1
=0.0938
=9.38%
c. Lender would like to quote 9.38% Per annum
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