Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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In daily life some time we need cash money very urgently and but we don't have that so due to which the payday loans are very common now days.
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- 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 in 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 rate 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…arrow_forwardDome Metals has credit sales of $162,000 yearly with credit terms of net 30 days, which is also the average collection period. a. Assume the firm offers a 2 percent discount for payment in 15 days and every customer takes advantage of the discount. Also assume the firm uses the cash generated from its reduced receivables to reduce its bank loans which cost 8 percent. What will the net gain or loss be to the firm if this discount is offered? (Use a 360-day year.) Loss of: $_________arrow_forwardTBTF Bank makes a 3 year interest only loan to AFC Inc of $2,350,000.00. The interest rate on the loan is ¡ (52) = 12.500%, and the payments will be made quarterly. TBTF reinvests the payments at an interest rate of ¡(26) = 14.250%. At maturity, what is TBTF Bank's annual ROI over the lifetime of the loan? (AFC does not default.) a. 11.289% b. 12.241% C. 13.601% d. 14.009% e. 12.377%arrow_forward
- 24) Can i get help with this question pleasearrow_forwardNonearrow_forwardThe Patel Company has several financial issues to solve. As the company’s Financial Analyst you have been asked to answer the following 2 questions: Their bank will lend them $100,000 for 90 days at a cost of $1,200 interest. What is the company’s effective annual rate? A major supplier has granted credit terms of 1/10 N120. Assuming the company can borrow any amount of money at the rate you have calculated above (in part 1), should the company take the discount? (Your answer must be supported with a calculation of the cost of not taking the discount – using either simple or effective annual rate)arrow_forward
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