Reference no: EM132698073
Suppose that you need to borrow $2000 from your local bank, which offers a discount rate of 7.75% if you pay off your loan in 2 years. Answer the following questions:
1. How much would you expect to receive as a proceeds?
2. What should be the loan amount if you need to get the entire $2000?
3. What if you want to get $2000 right away but you want to limit your loan to $2200 and pay it off in 3 years? Assume that the bank would agree, but only if they change the discount rate. What would be the new discount rate?
4. How much would the bank earn if they apply the new discount rate obtained in #3 above, and the loan remains as $2200?
5. What would be the term if the bank offers 3.87% discount rate?
6. How much would the bank get? If we keep the loan at $2367 and proceeds at $2000.
7. Find the interest rate (r) which is comparable to the discount rate (d) of 7 ¾ % when the term is 2 years.
8. What would be the discount rate (d) that is comparable to the interest rate (r) of 10% if you keep the term at 2 years.
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