Patricia promises to pay Patsy $2400.00 plus interest at 8% in one year. After 3 months passed, she decided to discharge her debt. What should she pay if the rate banks pay for short-term investments is 4.5%?

Patricia promises to pay Patsy $2400.00 plus interest at 8% in one year. After 3 months passed, she decided to discharge her debt. What should she pay if the rate banks pay for short-term investments is 4.5%?

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter4: Time Value Of Money

Section: Chapter Questions

Problem 25PROB

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Concept explainers

Cost of Credit

The cost of credit is an extra amount that the borrower has to pay besides the loan amount. These credit charges may vary from loan to loan. The cost of credit includes interest charges, maintenance charges, and arrangement charges. Some of the costs are mandatorily collected by the lender based on the loan amount and tenure of the loan. The cost of credit is also called finance charges of the credit.

Question

Patricia promises to pay Patsy $2400.00 plus interest at 8% in one year. After 3
months passed, she decided to discharge her debt. What should she pay if the rate
banks pay for short-term investments is 4.5%?

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