Repayment Schedule End of Month Monthly Payment Interest Portion Principal Outstanding Principal Balance January $266.55 $30.00 $236.55 $2,763.45 February 266.55 27.63 238.92 2,524.53 March 266.55 25.25 241.30 2,283.23 April 266.55 22.83 243.72 2,039.51 May 266.55 20.40 246.15 1,793.36 June 266.55 17.93 248.62 1,544.74 July 266.55 15.45 251.10 1,293.64 August 266.55 12.94 253.61 1,040.03 September 266.55 10.40 256.15 783.88 October 266.55 7.84 258.71 525.17 November 266.55 5.25 261.30 263.87 December 266.51 2.64 263.87 0.00 Total $3,198.56 $198.56 $3,000.00 Effective interest rate: Monthly rate = 1% Annual percentage rate (APR) - 12% Monthly payment = $3,000/ 1.01) Calculate the effective annual rate on each of the following loans: a. A $5,000 loan for two years, 10 percent simple annual interest, with principal repayment at the end of the second year b. A $5,000 loan for two years, 10 percent add-on interest, paid in 24 equal monthly installments c. A $5,000 loan to be repaid at the end of two years, 10 percent discount rate
Repayment Schedule End of Month Monthly Payment Interest Portion Principal Outstanding Principal Balance January $266.55 $30.00 $236.55 $2,763.45 February 266.55 27.63 238.92 2,524.53 March 266.55 25.25 241.30 2,283.23 April 266.55 22.83 243.72 2,039.51 May 266.55 20.40 246.15 1,793.36 June 266.55 17.93 248.62 1,544.74 July 266.55 15.45 251.10 1,293.64 August 266.55 12.94 253.61 1,040.03 September 266.55 10.40 256.15 783.88 October 266.55 7.84 258.71 525.17 November 266.55 5.25 261.30 263.87 December 266.51 2.64 263.87 0.00 Total $3,198.56 $198.56 $3,000.00 Effective interest rate: Monthly rate = 1% Annual percentage rate (APR) - 12% Monthly payment = $3,000/ 1.01) Calculate the effective annual rate on each of the following loans: a. A $5,000 loan for two years, 10 percent simple annual interest, with principal repayment at the end of the second year b. A $5,000 loan for two years, 10 percent add-on interest, paid in 24 equal monthly installments c. A $5,000 loan to be repaid at the end of two years, 10 percent discount rate
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Repayment Schedule
End of Month Monthly Payment Interest Portion Principal Outstanding Principal Balance
January
$266.55
$30.00
$236.55
$2,763.45
February
266.55
27.63
238.92
2,524.53
March
266.55
25.25
241.30
2,283.23
April
266.55
22.83
243.72
2,039.51
Мay
266.55
20.40
246.15
1,793.36
June
266.55
17.93
248.62
1,544.74
July
266.55
15.45
251.10
1,293.64
August
266.55
12.94
253.61
1,040.03
September
266.55
10.40
256.15
783.88
October
266.55
7.84
258.71
525.17
November
266.55
5.25
261.30
263.87
December
266.51
2.64
263.87
0.00
Total
$3,198.56
$198.56
$3,000.00
Effective interest rate:
Monthly rate = 1%
Annual percentage rate (APR) = 12%
Monthly payment = $3,000/
f(1.01)
Calculate the effective annual rate on each of the following loans:
a. A $5,000 loan for two years, 10 percent simple annual interest, with principal
repayment at the end of the second year
b. A $5,000 loan for two years, 10 percent add-on interest, paid in 24 equal monthly
installments
c. A $5,000 loan to be repaid at the end of two years, 10 percent discount rate
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