You are looking at a one-year loan of $29,000. The interest rate is quoted as 12

Question

You are looking at a one-year loan of $29,000. The interest rate is quoted as 12 percent plus two points. A point on a loan is simply 1 percent (one percentage point) of the loan amount. Quotes similar to this one are common with home mortgages. The interest rate quotation in this example requires the borrower to pay two points to the lender up front and repay the loan later with 12 percent interest. What rate would you actually be paying here? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Interest rate

Explanation / Answer

2 points = 2% of 29,000 = 580

interest on the loan = 12% of 29,000 = 3480

interest rate = 3480/(29000 - 580) = 12.24%

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