Question

you're looking at a one year loan for $10,000 the interest rate is quoted at 8% plus 5 Points a point on the loan is simply 1% of the loan amount quotes similar to this one are very common with homework Zeus the interest rate quotation in this example requires the border to pay five points to the lender upfront and repay the loan later with 10% interest what is the actual rate you are paying on this loan

Answer #1

Loan amount to be repaid= 10000*1.10=11000

Amount received after upfront fees = 10000*0.95 =9500

Effective interest rate:

11000=9500(1+r)

r=15.79%

Note: The question is puzzling due to the error in pasting, also it says quoted at 8%plus 5 points but in the end, it says 10% later, I have taken 10% but both should have been the same, both should have been 8% or 10% but I think the answer I have done is still correct, if not, just replace 1.10 with 1.08 in the first line.

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