You are looking at a one-year loan of $10,000. The interest rate is quoted as 8 percent plus 5 points

You are looking at a one-year loan of $10,000. The interest rate is quoted as 8 percent plus 5 points. A point on a loan is simply 1 percent (one percentage point) of the loan amount. Quotes similar to this one are very common with home mortgages. The interest rate quotation in this example requires the borrower to pay 5 points to the lender up front and repay the loan later with 10 percent interest. What is the actual rate you are paying on this loan?    A.  13.00 percent B.  13.47 percent C.  13.55 percent D.  13.68 percent E.  13.84 percent Loan amount received = $10,000 × (1 - .05) = $9,500 Loan repayment amount = $10,000 × 1.081 = $10,800 $10,800 = $9,500 × (1 + r)1; r = 13.68 percent

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Your holiday ski vacation was great, but it unfortunately ran a bit over budget. All is not lost. You just received an offer in the mail to transfer your $5,000 balance from your current credit card, which charges an annual rate of 18.7 percent, to a new credit card charging a rate of 9.4 percent. You plan to make payments of $510 a month on this debt. How many less payments will you have to make to pay off this debt if you transfer the balance to the new card?    A.  0.36 payments B.  0.48 payments C.  1.10 payments D.  1.23 payments E.  2.49 payments   $5,000 = $510 × [(1 - {1 + (0.094/12)]}t)/(0.094/12)] t = ln (1/0.9232)/ln 1.007833; t = 10.24 payments Difference = 10.72 - 10.24 = 0.48 payments