You are looking at a one-year loan of $11,500. The interest rate on a one-year loan...

You are looking at a one-year loan of $11,500. The interest rate on a one-year loan is quoted as 12.4 percent plus two points. What is the EAR of this loan? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Solutions

Expert Solution

Two points is 2% which will be deducted from loan value upfront.

Amount received = 11500 x (1-2%)

Amount received = 11270

Repayment amount = Total loan value x (1+Rate)

Repayment amount = 11500 x (1+12.4%)

Repayment amount = 12926

EAR = (Repayment amount - Amount received)/ Amount received

EAR = (12926 - 11270)/ 11270

EAR = 14.69%

jeff jeffy answered 2 years ago

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