What is the EAR of the lower cost loan?
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Hendo Corp. can borrow from its bank using a one year (a) simple interest loan with an 11.3% quoted rate and no compensating balance or (b) a discount interest loan with a quoted rate equal to 9.9% that requires a 15% compensating balance. What is the EAR of the lower cost loan? Hendo Corp. normally tries to keep its checking account balance close to $0.
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- Bozo Bank makes a loan to Rizzo Razors. It has a base lending rate on loans of 11% and charges a risk premium of 3% on the loan. It does not charge an origination fee, but imposes compensating balances of 10%. Reserve Requirements are 10%, and they do not pay interest. a. What would be the approximate cost of the loan to Rizzo Razors? b. What would be the return to the bank?Suppose that you owe $2,000 on a credit card that charges 18% APR and you pay either the minimum 10% or $20, whichever is higher, every month. How long will it take you to eliminate the debt? Assume that the bank uses the previous-balance method to calculate your interest, meaning that the bank does not subtract the amount of your payment from the beginning balance but charges you interest on the previous balance.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?
- State Federal Bank (SFB) offers two borrowing options to businesses: (1) a simple interest loan with a 7 percent interest rate and no compensating balance and (2) a discount interest loan with a quoted rate equal to 5 percent that requires a 20 percent compensating balance. If a firm needs a nine-month loan, which option should it choose based on rEAR? Assume the firm normally maintains a negligible checking account balance at the bank. Assume there are 360 days in a year. Do not round intermediate calculations. Round your answers to two decimal places. Option 1, rEAR: % Option 2, rEAR: % Based on rEAR, should be chosen.A bank is offering a loan of $20,000 with an interest rate of 9%, payable with monthly payments over a 4-year period. a. Calculate the monthly payment required to repay the loan. b. This bank also charges a loan fee of 4% of the amount of the loan, payable at the time of the closing of the loan (that is, at the time the borrower receives the money). What effective interest rate is the bank charging?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%
- Explain the Formula Otherwise I will dislike.. 1) A credit card company charges an interest rate of 1.13% per quarter on the unpaid balance of all accounts. What would be the effective rate of interest per year being charged by the company? The annual effective rate would be 4.52% The annual effective rate would be 4.60% The annual effective rate would be 4.13% The annual effective rate would be 1.13%Wrexham Corp. (WC) purchases computer parts from its suppliers 1/15, net 30. However, to take advantage of the discount WC needs to get a bank loan. The bank charges 8% interest (APR) and a one percent origination fee for the loan (assume the loan is for 1 year and is renewed yearly). What is the effective annual cost of not taking the trade discount? What is the effective cost of the bank loan? Should WC take out the bank loan to take advantage of the trade credit?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.
- Credit card companies have different policies and rates. One company's policies are as follows: Part 1 out of 2 a. The monthly finance charge on the amount due is determined by the following rule: 0.0118 times the first $500; 0.0098 times the next $500; and 0.0086 times the amount over $1,000. What is the finance charge on $5,400 rounded to the nearest hundredth of a dollar?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.Credit card companies have different policies and rates. One company's policies are as follows: Part 1: a. The monthly finance charge on the amount due is determined by the following rule: 0.0149 times the first $500; 0.0095 times the next $500; and 0.0081 times the amount over $1,000. What is the finance charge on $6,000 rounded to the nearest hundredth of a dollar? $ 52.70 Part 2 out of 2 b. The late charges are 0.05 times the amount past due. What is the late charge on $442.03, rounding the answer to the nearest hundredth of a dollar?