Unsecured sources of short-term loans-personal finance

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Reference no: EM131915310

Unsecured sources of short-term loans, Personal Finance Problem- John Savage has obtained a short-term loan from First Carolina Bank. The loan matures in 180 days and is in the amount of $41,000 John needs the money to cover start-up costs in a new business. He hopes to have sufficient backing from other investors by the end of the next 6 months. First Carolina Bank offers John two financing options for the $41,000 loan: a fixed-rate loan at 2.4 % above the prime rate, or a variable-rate loan at 1.3 % above prime. Currently, the prime rate of interest is 6.9 %, and the consensus interest rate forecast of a group of economists is as follows: 60 days from today the prime rate will rise by 0.3 %; 90 days from today the prime rate will rise another 1.4 % 180 days from today the prime rate will drop by 0.5 % Using the forecast prime rate changes, answer the following questions. Assume a? 365-day year.

a. Calculate the total interest cost over 180 days for a fixed-rate loan.

b. Calculate the total interest cost over 180 days for a variable-rate loan.

c. Which is the lower-interest-cost loan for the next 180 days?

Round all answers to the nearest cent

Reference no: EM131915310

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