In: Finance
Your firm is considering two one-year loan options for a $ 489 comma 000 loan. The first carries fees of 2 % of the loan amount and charges interest of 3.7 % of the loan amount. The other carries fees of 1.8 % of the loan amount and charges interest of 4.5 % of the loan amount.
a. What is the net amount of funds from each loan?
b. Based on the net amount of funds, what is the true interest rate of each loan?
(a)
Amount of loan= 489000
First loan fees = 2%
So net amount of funds = loan *(1-fees %)
489000*(1-2%)
479220
Second loan fees = 1.80%
So net amount of funds = loan *(1-fees %)
489000*(1-1.8%)
480198
So net funds from loan A $479,220.00
from loan B= $480,198.00
(b) Interest on first Loan = 3.70%
Interest = loan * interest rate
489000*3.7%
18093
True rate of interest = Interest/Net funds*100
18093 /479220*100
3.78%
Interest on loan B= 4.50%
So ínterest=
489000*4.5%
22005
True rate of interest = Interest/Net funds*100
22005/ 480198 *100
4.58%
So True cost of Loan in First loan is 3.78%
in second Loan is 4.58%