Your bank offers discount loans at a discount rate of 7.50%
If you borrowed $50,000 as a discount loan from the bank today at this rate (you receive less than the face value today and repay the face value in one year), how much money would you receive today? What is the EAR of this loan?
What will be an ideal response?
Answer: Loan amount = FV × (1 - discount rate) = $50,000 × (1 - 0.075) = $46,250.
EAR = Interest paid/Net loan amount = $3,750/$46,250 = 8.11%.
You might also like to view...
Which of the following is the correct sequence of reaction to a crisis?
a. Denial, anger, rationalization, depression, acceptance b. Rationalization, anger, depression, acceptance, denial c. Denial, depression, anger, rationalization, acceptance d. Rationalization, depression, anger, denial, acceptance
The net income reported on the income statement for the current year was $100,000. Depreciation recorded on plant assets was $25,000. Accounts receivable and inventories decreased by $5,000 and $15,000, respectively. Prepaid expenses and Accounts Payable increased by $500 and $4,000, respectively. Using the indirect method, how much would be reported for net cash flows from operating activities
in the statement of cash flows? A) $130,500 B) $148,500 C) $141,500 D) $98,500
Excerpts from Colter Corporation's most recent balance sheet appear below: Year 2Year 1Current assets: Cash$92? $122? Accounts receivable, net 104? 114? Inventory 176? 166? Prepaid expenses 42? 42? Total current assets 414? 444? Total current liabilities$328? $300? Sales on account in Year 2 amounted to $1260 and the cost of goods sold was $750.The current ratio at the end of Year 2 is closest to:
A. 1.21 B. 0.36 C. 0.42 D. 1.26
________ is based on comparison of processes with a direct adversary in industry
Fill in the blanks with correct word