Determining the effective annual rate

Assignment Help Finance Basics
Reference no: EM131190470

You're given with a 5-year auto loan from your credit union. Suppose the total loan you have is $25,000 and the current market interest rate is 5.2% for the short-term loans with the same creditability as yours. Answer the following questions: (Show Solution)

a) Given that the APR (namely the Annual Percentage Rate. That is, the stated interest agreed on the loan) of the loan is 5.2% per year, what is the monthly payment if you're intended to have the loan for 5 years?

b) What is the effective annual rate if the loan is compounded monthly?

c) Suppose the credit union says that if you'd like to retire the loan earlier, say at the end of the 3rd year, you need to pay (say) $13,000 for the rest of the loan, would you take it given that you have no difficulty to generate the cash flow? Why or why not?

d) Suppose the original agreement that you signed with credit union is to have a 3-year loan and pay back the loan with $13,200 at the end of year 3, how much will be your monthly payment now?

e) Given that the present value of the loan which is $25,000 now, what is the Internal Rate of Return (IRR) for this loan? Is this rate different from the 5.2% market interest rate? Why or why not?

Reference no: EM131190470

Questions Cloud

Govt spending crowds out private provision of public goods : Why is it difficult to empirically determine the degree to which government spending crowds out private provision of public goods?
Should be willing to pay for the bond : ABC Corporation's bonds have a 10-year maturity, a 5.50% coupon rate with interest paid semiannually, and a par value of $1,000. If your  nominal required rate of return on these bonds is 8.25%, what is the maximum price you should be willing to ..
Goal lead to unethical or illegal behavior : Could this goal lead to unethical or illegal behavior, especially in areas like customer and employee safety, the environment, taxes, etc.? Try to give specific examples.
How many streetlights are socially optimal : The cost of building each streetlight is 3. If it is impossible to purchase a fractional number of streetlights,-  how many streetlights are socially optimal?
Determining the effective annual rate : a) Given that the APR (namely the Annual Percentage Rate. That is, the stated interest agreed on the loan) of the loan is 5.2% per year, what is the monthly payment if you're intended to have the loan for 5 years? b) What is the effective annual r..
Describes goodman brown at the end of hawthornes story : Which one of the following words best describes Goodman Brown at the end of Hawthorne's story? In "Young Goodman Brown," Hawthorne reveals his feelings about his Puritan ancestors when.
How many paths will get built : If the taxes are set so that each resident shares the cost evenly, how many paths will get built?- What prices should it set?
Determine the current and predicted : Determine the current and predicted (a) revenues (b) variable costs, and (c) total contribution margin and product margin. What should she be recommended to do? Why?
Evaluate capacity of the most common distribution channels : From the scenario, evaluate the capacity of the most common distribution channels available for the new product launch to provide consumers with easier access to the product. Speculate on the extent to which Golds Reling, Inc. could use each chann..

Reviews

Write a Review

Finance Basics Questions & Answers

  Financial reporting and analysis

Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..

  A report on financial accounting

This report is specific for a core understanding for Financial Accounting and its relevant factors.

  Describe the types of financial ratios

Describe the types of financial ratios and other financial performance measures that are used during venture's successful life cycle.

  Differences between sole proprietorship and corporation

Briefly describe the major differences between a sole proprietorship and a corporation

  Prepare a cash budget statement

Calculate the expected value of the apartment in 20 years' time. What is the mortgage loan repayment at the beginning of each month

  What are the implied interest rates

What are the implied interest rates in Europe and the U.S.?

  State pricing theory and no-arbitrage pricing theory

State pricing theory and no-arbitrage pricing theory

  Small business administration

Identify the likely stage for each venture and describe the type of financing each venture is likely to be seeking and identify potential sources for that financing.

  Effect of financial leverage

The Effect of Financial Leverage and working capital management

  Evaluate the basis for the payment to the lender

Evaluate the basis for the payment to the lender and basis for the payment to the company-counterparty.

  Importance of opps, ipps, mpfs and dmepos

Research and discuss the differences and importance of : OPPS, IPPS, MPFS and DMEPOS.

  Time value of money

Time Value of Money project

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd