AGRICULTURAL ECONOMICS
(If your answer does not match the answers given below, check with the instructor. There is always the chance, albeit small, that your answer is correct and there is a typo below.)
1. Bank A offers to lend you money at 10 percent compounded monthly, Bank B at 11 percent compounded quarterly, and Bank C at 12 percent compounded annually. Calculate the effective rates and state which bank offers the lowest cost of borrowed capital.
2. What are the interest payments on a $200 loan if the contractual rate is 12%, the loan will be paid back in four uniform interest and principal payments at the end of the next four years, and the remaining balance method of calculating interest will be used (fully amortized)? What is the actuarial, annual percentage, and the effective interest rate? (AIR, APR, ie =12%)
3. What are the interest payments on a $1,000 loan if the contractual rate is 12%, the loan will be paid back in four uniform principal payments at the end of the next four years, and the remaining balance method of calculating interest will be used? What is the actuarial, annual percentage, and the effective interest rate? (AIR, APR, ie =12%)
4. A farmer needs to borrow $1,000. The local PCA will make a 2-year loan fully amortized at 10% (annual rate) with quarterly payments. A $10 loan fee and stock purchase is required. The borrower stock requirement is the lesser of $1,000 or 2% of loan principal. Assume that sufficient money is borrowed to cover the $1,000, the fee and the stock requirement. Also assume that the stock requirement is returned to borrower when the loan is paid off and the last debt payment can be reduced by the stock amount. How much money needs to be borrowed? What is the dollar amount of the stock requirement? What is the quarterly loan payment? What is the actuarial, annual percentage, and the effective interest rate? (AIR =2.83%, APR = 11.32%, ie = 11.81%)
5. A farmer needs to borrow $50,000. The local PCA will make a four-year loan fully amortized at 12% with annual payments. A $100 loan fee and stock purchase is required. The borrower stock requirement is the lesser of $1,000 or 2% of loan principal. Assume that sufficient money is borrowed to cover the $50,000, the fee and the stock requirement. Also assume that the stock requirement is returned to borrower when the loan is paid off and the last debt payment can be reduced by the stock amount. How much money needs to be borrowed? What is the dollar amount of the stock requirement? What is the annual loan payment? What is the actuarial, annual percentage, and the effective interest rate? (AIR, APR, ie = 12.44%)
6. Suppose you plan to buy a house. The price of the house is $80,000. You have $10,000 for the down payment and plan to borrow $70,000 plus enough to pay for the points and closing costs. First American Bank has agreed to lend you the money. The loan will be fully amortized over 30 years at 8.0%, with 3 points. The loan payments will be monthly. The closing cost are estimated to be $2,000. Calculate the actuarial, annual percentage and effective rate on this loan if you sell the home and repay the loan at the end of the fifth year.