Determine the comparable interest rate for a $80,000 loan when the quoted information is 10.7% + 0.5 pt + $400. (Round your answer to two decimal places.)
To determine the comparable interest rate for the loan, we need to add up all the components of the quote: the percentage rate, the points, and the dollar amount. Here's how you can calculate it:
1. Start with the percentage rate: 10.7%
2. Add the points: 0.5 pt. Since each point is equal to 1% of the loan amount, we need to convert it to a decimal. 0.5 pt is equal to 0.005 as a decimal.
3. Add the dollar amount: $400.
Now let's calculate the comparable interest rate:
Step 1: Convert the percentage rate to a decimal:
10.7% = 0.107
Step 2: Add the points:
0.107 + 0.005 = 0.112
Step 3: Add the dollar amount:
0.112 + 400 = 400.112
Finally, we need to convert the comparable interest rate back to a percentage. Divide the result by the loan amount:
400.112 / 80000 = 0.0050014
To convert it to a percentage, multiply by 100:
0.0050014 * 100 = 0.50014
Rounding it to two decimal places, the comparable interest rate for the $80,000 loan is approximately 0.50%.