Match each of the definitions in #1-3 with one of the following rates: Effective
ID: 2621053 • Letter: M
Question
Match each of the definitions in #1-3 with one of the following rates:
Effective Annual Rate (EAR)
Annual Percentage Rate (APR)
Stated Interest Rate
The most important interest rate to use when comparing loans:
The interest rate that is quoted by a lender:
The interest rate charged per period multiplied by the number of periods per year:
Match each of the definitions in #4-6 with one of the following loans:
Amortized Loan
Pure Discount Loan
Balloon Loan
A loan where the regular payments are insufficient to retire the entire loan amount, which then must be repaid with one lump sum:
A loan where payments are equal in amount and include both interest and principal:
A loan where the borrower receives funds up front and repays it with a single lump sum in the future:
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Explanation / Answer
1)
The most important interest rate to use when comparing loans: Annual percentage Rate
The interest rate that is quoted by a lender: Stated interest rate
The interest rate charged per period multiplied by the number of periods per year: Annual percentage Rate
2)
A loan where the regular payments are insufficient to retire the entire loan amount, which then must be repaid with one lump sum: Balloon Loan
A loan where payments are equal in amount and include both interest and principal: Amortized Loan
A loan where the borrower receives funds up front and repays it with a single lump sum in the future: Pure Discount Loan