Reference no: EM131625111
Unsecured sources of short-term loans Personal Finance Problem John Savage has obtained a short-term loan from First Carolina Bank. The loan matures in 180 days and is in the amount of $40,000. John needs the money to cover start-up costs in a new business. He hopes to have sufficient backing from other investors by the end of the next 6 months. First Carolina Bank offers John two financing options for the $40,000 loan: a fixed-rate loan at 2.1% above the prime rate, or a vanable-rate loan at 1.6% above prime. Currently, the prime rate of interest is 6.4%, and the consensus interest rate forecast of a group of economists is as follows: 60 days from today the prime rate will rise by 079 90 days from today the prime rate will rise another 0.9%; 180 days from today the prime rate will drop by 0.6%. Using he forecast prime rate changes answer the following questions. Assume a 365-day year
a. Calculate the total interest cost over 180 days for a fixed-rate loan.
b. Calculate the total interest cost over 180 days for a variable-rate loan.
c. Which is the lower-interest-cost loan for the next 180 days? (Round to the nearest cent.)
a. If the fixed-rate loan costs 2.1% above the prime rate, the interest cost for the fixed-rate loan over 180 days is
b. If the variable-rate loan costs 1.6% above the prime rate, for the first 60 days, the interest cost for the variable-rate loan is
c. If 60 days from today the prime rate will rise by 0.7% to 7.1%, for the next 30 days, the interest cost for the variable-rate loan is . (Round to the nearest cent)