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sergeinik [125]
3 years ago
5

Suppose People's bank offers to lend you $10,000 for 1 year on a loan contract that calls for you to make interest payments of $

250.00 at the end of each quarter and then pay off the principal amount at the end of the year. What is the effective annual rate on the loan?a. 13.83%
b. 15.71%
c. 12.35%
d. 13.43%
e. 12.62%
Business
1 answer:
vodka [1.7K]3 years ago
4 0

Answer:

10.38%

Explanation:

The formula to compute the effective annual rate of the loan is shown below:

= (1 + nominal interest rate ÷ periods)^ number of period - 1

The nominal interest rate is shown below:

= $250 × 4 ÷ $10,000

= $1,000 ÷ $10,000

= 0.1

Now the effective annual rate is

= (1 + 0.1 ÷ 4)^4 - 1

= (1 + 0.025)^4 - 1

= 1.025^4 - 1

= 10.38%

Since the interest rate is measured on a quarterly basis, we know there are four quarters in a year and we do the same in the calculation part.

This is the answer but the same is not provided in the given options

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The present value of of $6,811 to be received in one year if the discount rate is 6.5 percent  will be $6, 395.31.

What does Present Value mean?

A financial concept that calculates the current value of a future sum of money or stream of cash flows is present value. It's used to compare the relative worth of different amounts of money that aren't available at the same time. The inverse of future value. The sum of future investment returns discounted at a specified rate of return is calculated as the present value of money you expect from future income.

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The procedure to find an present value:

Present Value = FV/ (1+i)^n

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6, 395.31

To know more about Present value,

brainly.com/question/15904086

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