Determine the comparable interest rate for a 80,000 loan when the quoted information is 10.7% + 0.5 pt.+ $400.00 Round to 2 decimal places
To determine the comparable interest rate for the loan, you need to add up all the fees and interest charges and divide it by the loan amount. Here's how you can calculate it:
1. Start by converting the percentage and points to decimal form. In this case, 10.7% is equal to 0.107 and 0.5 points is equal to 0.005.
2. Calculate the total fees and interest charges. First, multiply the loan amount by the decimal representation of the points: $80,000 x 0.005 = $400. Next, add the interest charges and the flat fee: $400 + $400.00 = $800.00.
3. Calculate the total loan amount. Add the initial loan amount and the fees: $80,000 + $800.00 = $80,800.00.
4. Calculate the interest rate by dividing the total fees and interest charges by the loan amount expressed as a decimal: $800.00 / $80,800.00 = 0.00990099.
5. Convert the decimal to a percentage. Multiply the result by 100 to get the comparable interest rate: 0.00990099 x 100 = 0.99%.
Rounding to 2 decimal places, the comparable interest rate for the $80,000 loan is approximately 0.99%.