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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I don't understand how to do this problem
To determine the comparable interest rate for the given loan, you need to add up the three components mentioned in the quoted information: 11.8%, 0.5 point, and $300.
First, let's understand what each component represents:
1. 11.8%: This is the base interest rate offered on the loan.
2. 0.5 point: A point is equal to 1% of the loan amount. In this case, 0.5 point means 0.5% of the loan amount.
3. $300: This is an upfront fee or additional cost associated with the loan.
To calculate the comparable interest rate, you need to add all the components together and then express it as a percentage of the loan amount.
1. Calculate the total additional cost: To convert the point to a dollar amount, multiply the loan amount by the point value (0.005). In this case, 0.005 * $50,000 = $250. Then, add the $250 to the upfront fee of $300 to get a total additional cost of $550.
2. Calculate the total loan amount: Add the loan amount of $50,000 to the total additional cost of $550 to get a total loan amount of $50,550.
3. Calculate the comparable interest rate: Divide the total additional cost by the loan amount and multiply by 100 to express it as a percentage. In this case, ($550 / $50,550) * 100 ≈ 1.09%.
Therefore, the comparable interest rate for the $50,000 loan with the quoted information of 11.8% + 0.5 pt + $300 is approximately 1.09%.