On 1/1/87, Cathy borrows $1,000 from ABS Finance Company and agrees to pay it back in...

On 1/1/87, Cathy borrows $1,000 from ABS Finance Company and agrees to pay it back in five annual installments at an annual effective rate of 11%. The first payment is due one year after the loan is issued. On 1/1/89 Cathy pays off the balance of the loan plus a 50$ prepayment penalty. Find ABC‘s effective overall yield rate i

Solutions

Expert Solution

Overall yield rate = ((Interest + Penalty)/ Loan Amount *100 ) /2

= ( (198 + 50) /1000 *100 ) / 2

= 24.8 / 2

= 12.4 %

Interest

Particulars	Amount due	Interest
On 1/1/88	1000	110
On 1/1/89	800	88

Total = (110 + 88) = 198

jeff jeffy answered 2 years ago

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