Question

Assume that you can borrow $175,000 for one year from a local commercial bank.
a. The bank loan officer offers you the loan if you agree to pay $16,000 in interest plus repay the $175,000 at the end of one year.
b. As an alternative you could get a one-year discount loan at 9 percent.
c. Which loan would have the lower effective cost?
d. At what discount loan interest rate would you be indifferent between the two loans?


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  • CreatedMarch 27, 2015
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