Determine the comparable interest rate for a $50,000 loan when the quoted information is 11.8% + 0.5 pt + $300. (Round your answer to two decimal places.)
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To determine the comparable interest rate, we need to break down the quoted information into its components:
1. 11.8%: This is the base interest rate, expressed as a percentage. It represents the cost of borrowing the money.
2. 0.5 pt: "Pt" stands for points, which are a percentage of the loan amount. To convert points to a percentage, divide the number of points by 100. In this case, 0.5 pt would be 0.005 (0.5 divided by 100).
3. $300: This is an additional fee or closing cost added to the loan amount.
To calculate the comparable interest rate, we add up these three components:
Comparable interest rate = Base interest rate + Points + Fee/Loan amount
Step 1: Convert 0.5 pt to a decimal by dividing by 100:
0.5 pt = 0.005
Step 2: Calculate the total interest and fees:
Total interest and fees = 11.8% + 0.005 + $300 = 0.118 + 0.005 + $300 = 0.123 + $300
Step 3: Divide the total interest and fees by the loan amount:
Comparable interest rate = (0.123 + $300) / $50,000
Calculating this expression will give us the comparable interest rate.