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 January 31st, 2017, 07:25 PM #1 Newbie   Joined: Jan 2017 From: Fresno Posts: 3 Thanks: 0 Need help with a math problem Hi. I have a word problem and I am not sure where to post because I am new. But the question is this. A borrower on January 1st funded their loan for \$258,039.34. The rate of interest was 3.50% with an "interest only" amortization. On January 14th, just 14 days later the borrower repaid the loan in full, with a \$65 fee charged and collected as an early payment penalty. Q: What is the actual all-in yield of return that was earned on the loan? Help :/ I know it's more than 3.50%! Last edited by skipjack; January 31st, 2017 at 07:41 PM.
 January 31st, 2017, 07:40 PM #2 Member   Joined: Oct 2016 From: Melbourne Posts: 77 Thanks: 35 Just to rewrite the question so it can be read... A borrower on January 1st funded their loan for \$258 039.34. The rate of interest was 3.50% with an "interest only" amortization. On January 14th, just 14 days later, the borrower repaid the loan in full, with a \$65 fee was charged and collected as an early payment penalty. What is the actual all-in yield of return that was earned on the loan? I'm not sure all the information has been given. How often is the interest compounded?
 January 31st, 2017, 07:45 PM #3 Newbie   Joined: Jan 2017 From: Fresno Posts: 3 Thanks: 0 It is computed on a 365/360 basis; that is, by applying the ratio of the interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding.
 January 31st, 2017, 07:46 PM #4 Global Moderator   Joined: Dec 2006 Posts: 17,204 Thanks: 1291 Did you realize that January 14th is 13 days after January 1st, not 14 days?
 January 31st, 2017, 09:27 PM #5 Newbie   Joined: Jan 2017 From: Fresno Posts: 3 Thanks: 0 Ha! 14th day,,,
 January 31st, 2017, 11:34 PM #6 Global Moderator   Joined: Dec 2006 Posts: 17,204 Thanks: 1291 Work out the interest charged on the loan. If, say, that is \$325, you can calculate that the \$65 fee is a fifth of the interest amount and then increase 3.5% by a fifth to give the effective rate that you want to find. For accuracy, work to at least five significant figures.

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