You Have Just Taken Out a Loan for $75,000

question 14

Multiple Choice

You have just taken out a loan for $75,000. The stated (simple) interest rate on this loan is 10 percent, and the bank requires you to maintain a compensating balance equal to 15 percent of the initial face amount of the loan. You currently have $20,000 in your checking account, and you plan to maintain this balance. The loan is an add-on installment loan which you will repay in 12 equal monthly installments, beginning at the end of the first month.
-Assume you borrow $12,000 from the bank using a 10.19 percent "add-on", one-year installment loan, payable in four equal quarterly payments. What is the effective annual rate of interest?

• A) 9.50%
• B) 10.19%
• C) 15.99%
• D) 16.98%
• E) 20.38%

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Definitions:

Motherboard

The main printed circuit board in a computer, which hosts the central processing unit, memory, and other essential components and connectors for peripherals.

Cache Memory

A small-sized type of volatile computer memory that provides high-speed data access to a processor and stores frequently used computer programs, applications, and data.

Random Access Memory

Volatile memory in computing devices used to store working data and machine code currently in use, allowing for quick data retrieval and storage.

CPU

Central Processing Unit acts as the core unit in a computer that handles the bulk of processing activities.