Summit Record Company is negotiating with two banks for a $122,000 loan. Fidelity Bank requires a compensating balance of 20 percent, discounts the loan, and wants to be paid back four quarterly payments. Southwest Bank requires a compensating balance of 10 percent, does not discount the loan, but wants to be paid back in 12 monthly installments. The stated ra for both banks is 9 percent. Compensating balances will be subtracted from the $122,000 in determining the available funds in part a. a-1. Calculate the effective interest rate for Fidelity Bank and Southwest Bank. (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) Fidelity Bank Southwest Bank a-2. Which loan should Summit accept? Southwest Bank O Fidelity Bank Effective Rate of Interest b. Recompute the effective cost of interest, assuming that Summit ordinarily maintains $24,400 at each bank in deposits that will serve as compensating balances. (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) Fidelity Bank Southwest Bank Effective Rate of Interest %
Summit Record Company is negotiating with two banks for a $122,000 loan. Fidelity Bank requires a compensating balance of 20 percent, discounts the loan, and wants to be paid back four quarterly payments. Southwest Bank requires a compensating balance of 10 percent, does not discount the loan, but wants to be paid back in 12 monthly installments. The stated ra for both banks is 9 percent. Compensating balances will be subtracted from the $122,000 in determining the available funds in part a. a-1. Calculate the effective interest rate for Fidelity Bank and Southwest Bank. (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) Fidelity Bank Southwest Bank a-2. Which loan should Summit accept? Southwest Bank O Fidelity Bank Effective Rate of Interest b. Recompute the effective cost of interest, assuming that Summit ordinarily maintains $24,400 at each bank in deposits that will serve as compensating balances. (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) Fidelity Bank Southwest Bank Effective Rate of Interest %
Chapter16: Working Capital Policy And Short-term Financing
Section: Chapter Questions
Problem 30P
Related questions
Question
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 4 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT