company usually has an average balance in its bank account equal to $60,000. The The company makes a loan for $80,000 to pay it off over the long term. The interest rate on the loan is 7%. The bank requires the company that, while the loan is in force, the company must have an average balance in your bank account of not less than $80,000. The requirement of thi

company usually has an average balance in its bank account equal to $60,000. The The company makes a loan for $80,000 to pay it off over the long term. The interest rate on the loan is 7%. The bank requires the company that, while the loan is in force, the company must have an average balance in your bank account of not less than $80,000. The requirement of thi

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter17: The Management Of Cash And Marketable Securities

Section: Chapter Questions

Problem 2P

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Similar questions

The Blake Company has an outstanding bank loan of P400,000 at an interest rate of 12%. The company is required to maintain a 20% compensating balance in its checking account. What is the effective interest cost of the loan? Assume that the company would not normally maintain this average amount? Format: 11%
Suppose that a bank does the following: a. Sets a loan rate on a prospective loan with BR = 4.23% and ϕ = 3.16%. b. Charges a 0.33 percent loan origination fee to the borrower. c. Imposes a 9 percent compensating balance requirement to be held as noninterest-bearing demand deposits. d. Holds reserve requirements of 8 percent imposed by the Federal Reserve on the bank’s demand deposits. Calculate the bank’s ROA on this loan.
Pedro Gil Company must maintain a compensating balance of P50,000 in its checking account as one of the conditions of its short-term 6% bank loan of P500,000. Pedro Gil’s checking account earns 2% interest. Ordinarily, Pedro Gil would maintain a P20,000 balance in the account for transaction purposes. What is the loan’s approximate effective interest rate? Please show your solution.
Assume that Bank M is the only commercial bank in the country with zero excess reserve and its legal cash requirement is 12%. Suppose that a customer, Mr. S, deposits RM5000 in the Bank M. a) Construct a balance sheet for Bank M b) Calculate the total deposits. c) Calculate the total reserves d) Calculate the total loans created
14. A company obtained a short-term loan of P250,000 an at annual interest rate of 6%. As a condition of the loan, the company is required ‭ maintain a compensating balance of P50,000 in a checking account. The company's checking account earns interest at an annual rate of 2%. Ordinarily the company maintains balance of P25,000 in its checking account for transaction purposes. What is the effective interest rate of the loan?
Show how each of the following would initially affect a bank’s assets liabilities. Someone makes $1000 deposit into a checking account. A bank makes a loan of $1000 by establishing a checking account for $1000 The loan described in part (B) is spent. A bank must write off a loan because the borrower defaults.
A4) Finance A company has an average collection period of 34 days and factors all of its receivables immediately at a 3.1% discount. Assume all accounts are collected in full. What is the firm's effective cost of borrowing?
Holland Construction Company has an outstanding 180-day bank loan of $393,000 at an annual interest rate of 9.7%. The company is required to maintain a 14% compensating balance in its checking account. What is the effective interest rate on the loan? Assume the company would not normally maintain this average amount.
Assuming loan made by M Enterprises to Banco De Oro amounting to P350,000.00 payable in three years with a monthly interest of 1.05%. M enterprises issued 12 checks for 1 year and upon 3rd month, issued check was bounced. What could be the possible action of the drawee? Elaborate your answer with supporting data. What could be the possible violation of the above scenario where they would just escape the obligation to the said bank upon the rules of commercial/ personal credit?
Suppose that a bank does the following: a. Sets a loan rate on a prospective loan at 8 percent (where BR=5% and φ=3%. b. Charges a 110 percent (or 0.10 percent) loan origination fee to the borrower. c. Imposes a 5 percent compensating balance requirement to be held as non-interest-bearing demand deposits. d. Holds reserve requirements of 10 percent imposed by the Federal Reserve on the bank’s demand deposits. Calculate the bank’s ROA on this loan.
Charlton Enterprises negotiated a line of credit at the bank that requires it to pay 12.5% interest on its borrowing. The firm is required to maintain a compensating balance equal to 10% of the amount borrowed. The firm borrowed $500,000 during the year. a.Calculate the effective annual rate on the firm’s borrowing if the firm normally maintains no deposit balances at the bank.b.Calculate the effective annual rate on the firm’s borrowing if the firm normally maintains a deposit balance of $45,000 at the bank. c.Calculate the effective annual rate on the firm’s borrowing if the firm normally maintains a deposit balance of $145,000 at the bank. d.What is the change in the effective annual rate when the deposit balances increase?
17. Assume that a bank obtains most of its funds from long-term borrowed funds such as Federal Home Loan Bank borrowings. The bank's assets are in the form of loans with rates that adjust affected if interest rates every three months. In the next three months, the bank would be increase. A. negatively. B. favorably. C. unaffected.