Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
15th Edition
ISBN: 9780134476315
Author: Chad J. Zutter, Scott B. Smart
Publisher: PEARSON
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Chapter 16, Problem 16.13P

Compensating balance versus discount loan Weathers Catering Supply Inc. needs to borrow $150,000 for 6 months. State Bank has offered to lend the funds at a 9% annual rate subject to a 10% compensating balance. (Note: Weathers currently maintains $0 on deposit in State Bank.) Frost Finance Co. has offered to lend the funds at a 9% annual rate with discount-loan terms. The principal of both loans would be payable at maturity as a single sum.

  1. a. Calculate the effective annual rate of interest on each loan.
  2. b. What could Weathers do that would reduce the effective annual rate on the State Bank loan?
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Compensating balance versus discount loan Weathers Catering Supply, Inc., needs to borrow $149,000 for 6 months. State Bank has offered to lend the funds at an annual rate of 8.9% subject to a 10.4% compensating balance. (Note: Weathers currently maintains $0 on deposit in State Bank.) Frost Finance Co. has offered to lend the funds at an annual rate of 8.9% with discount-loan terms. The principal of both loans would be payable at maturity as a single sum. a. Calculate the effective annual rate of interest on each loan. b. What could Weathers do that would reduce the effective annual rate on the State Bank loan? a. State Bank's semi-annual rate is %. (Round to two decimal places.)
Weathers Catering​ Supply, Inc., needs to borrow $145,000 for 6months. State Bank has offered to lend the funds at an annual rate of 8.6% subject to a 10.4% compensating balance. (​Note: Weathers currently maintains $0 on deposit in State​ Bank.) Frost Finance Co. has offered to lend the funds at an annual rate of 8.6% with​ discount-loan terms. The principal of both loans would be payable at maturity as a single sum.   a. State​ Bank's semi-annual rate is ? ​(Round to two decimal​ places.)   State​ Bank's effective annual rate is ? ​(Round to two decimal​ places.)   Frost​ Finance's semi-annual rate is ? (Round to two decimal​ places.)   Frost​ Finance's effective annual rate is ? ​(Round to two decimal​ places.)
Weathers Catering​ Supply, Inc., needs to borrow $149,000 for 6 months. State Bank has offered to lend the funds at an annual rate of  9.2% subject to a 10.5% compensating balance. ​(​Note: Weathers currently maintains $0 on deposit in State​ Bank.) Frost Finance Co. has offered to lend the funds at an annual rate of 9.2% with​ discount-loan terms. The principal of both loans would be payable at maturity as a single sum.   a. Calculate the effective annual rate of interest on each loan. b. What could Weathers do that would reduce the effective annual rate on the State Bank​ loan?

Chapter 16 Solutions

Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)

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