RE-160 Lecture Notes - Lecture 31: Annual Percentage Rate, Effective Interest Rate

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Truth in lending requirements and the annual percentage rate (apr) Lender must disclose to the borrower the annual percentage rate being charged on the loan. Calculated as above and disclosed to the borrower at closing rounding the interest rate up or down to the nearest one-eight. When loan fees are charged and the loan is paid off before maturity, the effective interest cost of the loan increase even further. Using our example if the loan was repaid after five years, we need to determine the loan balance after the five years. The effective interest rate is given by: ,2000 = . 17 (mpvifa, ?%, 5 yrs) + ,200 (mpif, ?%, 5 yrs) The above problem brings about a complicated discounting situation since we have an annuity in the form of monthly payments for the five years and a loan balance or single lump sum receipt of cash. This can be solved using the following steps: discounting at 12%:

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