Cost of Bank LoansGifts Galore Inc. borrowed $1.6 million from National City Bank. Theloan was made at a simple annual interest rate of 12% a year for 3months. A 25% compensating balance requirement raised the effectiveinterest rate. Do not round intermediate calculations. Round youranswers to two decimal places.a. The nominal annual rate on the loan was 11.5%. What is the trueeffective rate?12.00%b. What would be the effective cost of the loan if the note requireddiscount interest?12.38%c. What would be the nominal annual interest rate on the loan if thebank did not require a compensating balance but requiredrepayment in three equal monthly installments?%

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Answered: Cost of Bank Loans Gifts Galore Inc.…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 14P

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Gifts Galore Inc. borrowed $1.5 million from National City Bank. The loanwas made at a simple annual interest rate of 9% a year for 3 months. A 20%compensating balance requirement raised the effective interest rate.a. The nominal annual rate on the loan was 11.25%. What is the trueeffective rate?
Ezze Mattress needs to raise $200,000 for 6 months. The bank quotes a discount interest rate of 7.5% but does not require compensating balances. What is the effective annual interest rate on this loan? Multiple choice question. 7.50% 8.11% 7.84% 7.81%
The following loan was paid in full before its due date. a) Find the value of h using an appropriate formula. b) Use the actuarial method to find the amount of unearned interest. c) Find the payoff amount. Regular Monthly Payment APR # of Payments Remaining after Payoff 8.7% 4 $214 What is the finance charge per $100 financed? h = $ (Round to the nearest cent.) The unearned interest is about $ (Round to the nearest cent.) The payoff amount is $ Enter your answer in each of the answer boxes. f12 inser f9 f1o f7 fg f6 f4 f5 esc 5 7 8. %24 3 %23
Leven Corporation negotiated a short-term loan of $685,000. The loan is due in 10 months and carries a 6.86 interest rate. Use simple interest to calculate the total amount of thetioan. If necessary, round the answer to the nearest cent.
The York Company has arranged a line of credit that allows it to borrow up to $45 milion at any time. The interest rate is .621 percent per month. Additionally, the company must deposit 3 percent of the amount borrowed in a non-interest bearing account. The bank uses compound interest on its line-of-credit loans. What is the effective annual rate on this line of credit? Multiple Choices 6.40% 7.71% 7.95% 7.06% 8.83%
Note: kindly answer all... Please help me?? A company borrowed $7,900,000 from a bank.The company repaid the loan after 3 years with a single payment of $10,000,000. The compound interest rate (i) on the loan is: A. 11.5%, B. 9.50%, C.7%, D.8.17% The time it would take for a given sum of money to be triple at i=10% per year compound interest is closest to: A. 12 Yr B. 14 Yr C. 15 Yr D. 9 Yr E. 8yr If interest is compounded at 12% per year, how long will it take for $50,000 to accumulate to $88,600? A. 6yr B.9 Yr C. 8yr D.5yr At an interest rate (i) of 13% per year, the equivalent amount of $10,000 three years ago is closest to: A. $6245 B. $6589 C. $7245 D. $6931 E. $7833
A bank makes a loan of $1,000,000 at a rate of 6% p.a. It also requires a compensating balance of 5%. What is the effective cost to the borrower? 6.05% 6.25% 6.32% 6.45% You invest $10,000 in a 270-day CD at a rate of 6%, compounded daily. What is the amount you receive at maturity? $10,460.24 $10,600.22 $11,200.35 $11,345.48
XXX, Inc. finances tis seasonal working capital need with short-term bank loans. Management plans to borrow $65,000 for a year. The bank has offered the company a 3.5 percent discounted loan with a 1.5 percent origination fee. What are the interest payment and the origination fee requiered by the loan? What is the rate of interest charged by the bank?
Carey Company is borrowing $250,000 for one year at 10.0 percent from Second Intrastate Bank. The bank requires a 18 percent compensating balance. The principal refers to funds the firm can utilize effectively (Amount borrowed - Compensating balance) a. What is the effective rate of interest? (Use a 360-day year. Input your answer as a percent rounded to 2 decimal places.) Effective rate of interest b. What would the effective rate be if Carey were required to make 12 equal monthly payments to retire the loan? (Use a 360-day year. Input your answer as a percent rounded to 2 decimal places.) Effective rate of interest
Holland Construction Co. has an outstanding 180-day bank loan of $394,000 at an annual interest rate of 9.8%. The company is required to maintain a 13% 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 (Use 360 days in a year. Round your answer to 2 decimal places.) Multiple Choice 14.26% 1026% 13.26% 11:26%
You have just received credit card applications from two banks, A and B. The interest terms on your unpaid balance are stated as fallows:1. Bank A: 20% compounded quarterly.2. Bank B: 19.5% compounded daily.Which of the following statements is incorrec1?(a) The effective annual interest rate for Bank A is 18.25%.(b)The nominal annual interest rate for Bank B is 19.5%.(c) Bank B's term is a better deal, because you will pay less interest on yourunpaid balance.(d) Bank A's term is a better deal, because you will pay less interest on yourunpaid balance.
A company received a P 500,000 line of credit from its bank. Some information about the credit line is as follows: Stated interest rate 10% Compensating balance requirement 20% Assuming that the company drew down the entire amount at the beginning of the year, and that the loan is discounted, what is the effective interest rate on the loan?

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