You are looking at a one-year loan of $18,000. The Interest rate is quoted as 9...

Transcribed Image Text:

You are looking at a one-year loan of $18,000. The Interest rate is quoted as 9 percent plus three points. A point on a loan is simply 1 percent (one percentage point) of the loan amount. Quotes similar to this one are common with home mortgages. The interest rate up front quotation in this example requires the borrower to pay three points to the lender and repay the loan later with 9 percent interest. What rate would you actually be paying here? An insurance company is offering a new policy to its customers. Typically, the policy is bought by a parent or grandparent for a child at the child's birth. The details of the policy are as follows: The purchaser (say, the parent) makes the following six payments to the insurance company: First birthday: Second birthday: Third birthday: Fourth birthday: Fifth birthday: Sixth birthday: $ $ $ $ $ $ 770 770 870 870 970 970 After the child's sixth birthday, no more payments are made. When the child reaches age 65, he or she receives $361,000. If the relevant interest rate is 11 percent for the first six years and 7 percent for all subsequent years, what is the value of the policy at the child's 65th birthday? You are looking at a one-year loan of $18,000. The Interest rate is quoted as 9 percent plus three points. A point on a loan is simply 1 percent (one percentage point) of the loan amount. Quotes similar to this one are common with home mortgages. The interest rate up front quotation in this example requires the borrower to pay three points to the lender and repay the loan later with 9 percent interest. What rate would you actually be paying here? An insurance company is offering a new policy to its customers. Typically, the policy is bought by a parent or grandparent for a child at the child's birth. The details of the policy are as follows: The purchaser (say, the parent) makes the following six payments to the insurance company: First birthday: Second birthday: Third birthday: Fourth birthday: Fifth birthday: Sixth birthday: $ $ $ $ $ $ 770 770 870 870 970 970 After the child's sixth birthday, no more payments are made. When the child reaches age 65, he or she receives $361,000. If the relevant interest rate is 11 percent for the first six years and 7 percent for all subsequent years, what is the value of the policy at the child's 65th birthday?

Answer rating: 100% (QA)

To calculate the actual interest rate you would be paying on the oneyear loan with an interest rate ... View the full answer