Log in
Finance
1
answer
0
watching
250
views

Janet took a $3000 loan from an online lendingplatform. The platform charges a "processing fee" of $400 and onlypays Janet $2600 right now. Janet needs to pay back the $3000 debtin 3 monthly installments （equal amount). What is the impliedinterest rate (in terms of APR) for this loan?
A. 238%
B. 90%
C. 78%
D. 214%

Watch
1
answer
0
watching
250
views

For unlimited access to Homework Help, a Homework+ subscription is required.

Elin Hessel
Elin HesselLv2
28 Sep 2019

Unlock all answers

Get 1 free homework help answer.
Already have an account? Log in
Share

Related questions

John took a mortgage loan 5 years ago for $120,000 at 7% interest for 15 years, to be paid in monthly payments. Now, a lender is offering him a new mortgage loan at 5% for 10 years. The new loan amount is $92,895, the outstanding loan balance of the existing loan. Suppose that a prepayment penalty of 3% must be paid if John refinances the existing loan. Moreover, the lender who is making the new loan requires an origination fee of $3,000. John plans to hold the property for 10 years. Note: John has to pay the refinancing fees (i.e., the origination fee and the prepayment penalty) out of his pocket.

(a) What is the total financing cost (not include the loan amount itself) if John decides to refinance the old loan?

(b) What is the monthly savings that John could realize by refinancing?

(c) Given the information provided here, should John refinance? Please support your answer by calculating the effective interest rate of the new loan.

(d) Now suppose that John’s current income is low. The new lender allows him to pay a monthly payment of $300 for the new loan (i.e., the actual monthly payment to the lender is only $300, while the loan interest rate is 5%). In this situation, negative amortization occurs. What will be the accrued interest or the amount of increased loan balance for the loan three years later from now?

(e) Assume that John has to borrow two loans in order to refinance. That is, he has to borrow a new mortgage ($70,000) at 5% for 10 years (i.e., the loan maturity and the amortization period are the same, 10 years) and another mortgage ($22,895) at 9% for 5 years (the loan maturity and the amortization period are the same, 5 years). In this case, with the same origination fee of $3,000 (i.e., a total of $3,000 for the two loans) and the prepayment penalty of 3%, should John go ahead with the refinancing plan? Why?

(I primarily need assistance with Sections D and E as I believe I have A-C correct)

Hand-to-Mouth is currently cash-constrained, and must make a decision about whether to delay paying one of its suppliers, or taking out a loan. They owe the supplier $13,000, but the supplier will give them a 2% discount if they pay by today (when the discount period expires). That is, they can either pay $12,740 today, or $13,000 in one month when the net invoice is due. Because Hand-Mouth does not have the $12,740 today, or $13,000 in one month when the net invoice is due. Because Hand-to-Mouth does not have the $12,740 in cash right now, it is considering three options:

Alternative A: Forgo the discount on its trade credit agreement, wait and pay the full $13,000 in one month.

Alternative B: Borrow the money from Bank A, which has offered to lend the firm $12,740 for one month at an APR (compounded monthly) of 11.7%. The bank will require a (no-interest) compensating balance of 4.6% of the face value of the loan and will charge a $90 loan origination fee, which means Hand-to-Mouth must borrow even more than the $12,740.

Alternative C: Borrow the money from Bank B, which has offered to lend the firm $12,740 for one month at an APR of 14.9% (compounded monthly). The loan has a 1.1% loan origination fee.

Alternative A: The effective annual cost is ______________________%. (Round to two decemial places)

Alternative B: The effective annual rate is _______________%. (Round to two decimal places)

Alternative C: The effective annual rate is ______________%. (Round to two decimal places)

(Select the best choice below):

A. Alternative B, with the lowest effective annual rate, is the best option for Hand-to-Mouth

B. Alternative C, with the lowest effective annual rate, is the best option for Hand-to-Mouth

C. Alternative A, with the lowest effective annual rate, is the best option for Hand-to-Mouth

D. All the alternatives are equivalent.

Skip Stephens recently graduated from college with a degree Ibusiness administration. While attending college, Skip built up alarge amount of debt, which currently includes student loans,outstanding credit card balances, bank loans, and so forth. Nowthat he has a good-paying job, Skip wants to clean up his debtposition to improve his credit reputation so that he can qualifyfor a mortgage when he is ready to purchase a house in a fewyears.

As a result of a conversation with a financial planner, Skipdecided that he should consolidate his debt into a single loan.Consolidation will help him monitor his debt better as he pays itoff, and such an action probably will also decrease the interestrate that he is now paying. It took some effort, but Skip was ableto find a financial institution that seems willing to offer him thetype of loan he needs. The firm, which is named Syndicated Lending,is a new firm that specializes in loans to riskier borrowers, so itappears to be the right fit for Skip. Much of Syndicated’s businessis conducted electronically via the Internet. Although the companyhas a Website that gives some information about loans thatSyndicated offers, there is not much information about interestrates, application fees, and other charges associated with gettinga loan. When Skip clicked on the “Interest Rate” icon onSyndicated’s Website, a message appeared that said to contact thecompany directly. After many attempts, Skip was able to speak to a“real” person at Syndicated. When he asked why more information wasnot available on the Website, the employee stated that the companydecided not to post interest rates because managers believed it wasunfair to publicize low rates to lure customers, knowing that mostborrowers are unable to qualify for such loans. In other words,managers felt that it was unethical to use the “bait andswitch”1 tactics used by competitors. The employee gaveSkip some general information about the loans that Syndicatedoffers, but she would not tell him interest rates because thecompany had a policy of not quoting a rate until a thorough creditcheck was completed. As a result, to get an interest quote, Skipwould have to fill out and submit a loan application and he wouldhave to pay a $100 application/credit check fee.

Skip decided that he wanted more information about Syndicatedbefore deciding whether to apply for a loan, so he talked withpeople in the local area, searched chat boards and consumer opinionWebsites on the Internet, and so forth. Although much of theinformation he collected was positive, many people complained thatSyndicated was a “shady” organization that has a reputation ofchanging interest rates without notice and that it is not acustomer-friendly firm. Some of the people whom Skip talked withwent so far as to call Syndicated an unethical “loan shark” thatcould get away with unannounced interest rate hikes and otherchanges in loan agreements because the company knows that itscustomers cannot borrow from any other financial institution in thelocal area.

Now Skip is wondering whether it is wise to apply for aconsolidated loan from Syndicated, even though it appears that hecan improve his credit rating and lower his interest payments. Whatshould Skip do? Does it seem as though Syndicated follows unethicallending practices? Is it unethical to use “bait and switch” tacticslike those that Syndicated accuses other institutions of using?Should interest rates be posted on the company’s Website?

Weekly leaderboard

Home
Homework Help 3,900,000
Finance 370,000
Start filling in the gaps now
Log in