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Calculating different interest rates

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(Cost 0f Bank Loan) For a one-year loan of $100 with an APR interest rate of 15%, determine the cash flows and the APY for each of the following loans: Interest in arrears, Discount loan, Interest in arrears with a 10% compensating balance, Discount loan with a 10% compensating balance

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Interest in arrears - In this case interest is paid at the end of the year and so the APY would be the same as the APR of 15%

Discount loan - In this case the interest is deducted at the start of the loan. Interest amount is 100 X 15% = $15. So actual amount ...

Solution Summary

This solution explains how to calculate the interest rates on different types of loans.