Question

A borrower is considering refinancing and finds that the return, considering refinancing charges and lower payments, is 10%. The borrower can earn 12% on alternative investments. What should the borrower do? 

          A borrower is considering refinancing and finds that the return, considering refinancing charges and lower payments, is 10%. The borrower can earn 12% on alternative investments. What should the borrower do?

Added by Kathy S.

Horngren’s Cost Accounting
Horngren’s Cost Accounting
Srikant M. Datar, Madhav V. Rajan 16th Edition
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A borrower is considering refinancing and finds that the return, considering refinancing charges and lower payments, is 10%. The borrower can earn 12% on alternative investments. What should the borrower do?
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Transcript

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00:01 Hello students, here is a question.
00:02 In a discount interest loan, the bank deducts an interest in advance.
00:06 Does the borrower receive less than a face value of a loan for one year i .e.
00:12 10 ,000? discount loan with a 12 % nominal rate with annual payment.
00:17 The interest is $1 ,200.
00:20 Therefore, the borrowers obtain only $10 ,000 minus $1 ,200 which gives us $8 ,800.
00:28 What is the annual percentage rate and the effective annual rate for the loan? so let us start solving this problem.
00:36 So annual rate is apr i .e...
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