Determine the comparable interest rate for a $80,000 loan when the quoted information is 10.4% + 0.5 pt + $300. (Round your answer to two decimal places.)
To determine the comparable interest rate for a loan, you need to consider the various charges and fees associated with the loan. In this case, the borrowed amount is $80,000.
First, let's break down the components of the quoted information:
- 10.4%: This represents the interest rate on the loan.
- 0.5 pt: This represents half a percentage point, which is an additional charge.
- $300: This represents a flat fee.
Now, let's calculate the total charges for the loan:
- Additional charge: 0.5% of $80,000 = $400
- Flat fee: $300
To find the total charges, add the additional charge and the flat fee:
$400 + $300 = $700
Next, let's calculate the total amount that needs to be repaid:
Loan amount + Total charges = $80,000 + $700 = $80,700
Now, we can determine the comparable interest rate:
Equivalent interest rate = Total charges / Loan amount
Comparable interest rate = ($700 / $80,000) x 100%
Calculating this gives us:
Comparable interest rate = 0.00875 x 100% = 0.875%
Rounding to two decimal places, the comparable interest rate for the $80,000 loan is 0.88%.