Suppose you are considering taking consumer loan from bank for one year. Usually, for short-term loans, the bank offers 8 percent interest that compounds annually. Your credit application has been viewed by a few banks and two of them replied; Bank ALFA offers you a loan at 8 percent annual rate-interest payment by the end of year, and Bank BETA offers a loan with the same annual interest rate, but interest payment is 2 percent by the end of each quarter. Which loan do you prefer? Why?

Suppose you are considering taking consumer loan from bank for one year. Usually, for short-term loans, the bank offers 8 percent interest that compounds annually. Your credit application has been viewed by a few banks and two of them replied; Bank ALFA offers you a loan at 8 percent annual rate-interest payment by the end of year, and Bank BETA offers a loan with the same annual interest rate, but interest payment is 2 percent by the end of each quarter. Which loan do you prefer? Why?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 15P

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Suppose you are considering taking consumer loan from bank for one year. Usually, for short-term loans, the bank offers 8 percent interest that compounds annually. Your credit application has been viewed by a few banks and two of them replied; Bank ALFA offers you a loan at 8 percent annual rate-interest payment by the end of year, and Bank BETA offers a loan with the same annual interest rate, but interest payment is 2 percent by the end of each quarter. Which loan do you prefer? Why? Sadia Corporation, based in UAE, produces meat and milk products. The company sold old machinery for 50,000 UAE dirham and decided to put this amount in a term deposit, which usually pays 5 percent annually. A) Calculate the amount of money that Sadia Corporation will receive after 2, 4, and 7 years of deposit. B) Re-calculate results from part (a) if bank offers 5 percent annual compound interest on semi-annual basis. C) Re-calculate results from part (a) if bank offers 5 percent annual simple…
Suppose you are considering taking consumer loan from bank for one year. Usually, for short-term loans, the bank offers 8 percent interest that compounds annually. Your credit application has been viewed by a few banks and two of them replied; Bank ALFA offers you a loan at 8 percent annual rate-interest payment by the end of year, and Bank BETA offers a loan with the same annual interest rate, but interest payment is 2 percent by the end of each quarter. Which loan do you prefer? Why? Sadia Corporation, based in UAE, produces meat and milk products. The company sold old machinery for 50,000 UAE dirham and decided to put this amount in a term deposit, which usually pays 5 percent annually. A. Calculate the amount of money that Sadia Corporation will receive after 2, 4, and 7 years of deposit. B. Re-calculate results from part (a) if bank offers 5 percent annual compound interest on semi-annual basis. C. Re-calculate results from part (a) if bank offers 5 percent annual simple…
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