2) Home loans typically involve “points,” which are fees charged by the lender. Each point charged means that the borrower must pay 1% of the loan amount as a fee. For example, if the loan is for $170,000 and 4 points are charged, the loan repayment schedule is calculated on a $170,000 loan but the net amount the borrower receives is only $163,200. What is the effective annual interest rate charged on such a loan assuming loan repayment occurs over 156 months? Assume the interest rate is .75% per month. (Do not round intermediate calculations. Round your answer to 2 decimal places.) | Effective annual interest rate | % |
3) Suppose you take out a $1,000, 4-year loan using add-on interest with a quoted interest rate of 23.25% per year. |
a. | What will your monthly payments be? (Total payments are $1,000 + $1,000 × .2325 × 4 = $1,930.) (Do not round intermediate calculations. Round your answer to 2 decimal places.) |
Monthly payments | $ |
b. | What are the true APR and effective annual rate on this loan? (Do not round intermediate calculations. Round your answers to 3 decimal places.) |
| APR | % | Effective annual rate | % | | |
4) In a discount interest loan, you pay the interest payment up front.