15-4. (Estimating the cost of bank credit) Paymaster Enterprises has arranged to finance its seasonal working-capital needs with a short-term bank loan. The loan will carry a rate of 8 percent per annum with interest paid in advance (discounted). In addition, Paymaster must maintain a minimum demand deposit with the bank of 10 percent of the loan balance throughout the term of the loan. If Paymaster plans to borrow $1 million for a period of 6 months, what is the cost of the bank loan?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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15-4. (Estimating the cost of bank credit) Paymaster Enterprises has arranged to finance
its seasonal working-capital needs with a short-term bank loan. The loan will carry a
rate of 8 percent per annum with interest paid in advance (discounted). In addition,
Paymaster must maintain a minimum demand deposit with the bank of 10 percent of
the loan balance throughout the term of the loan. If Paymaster plans to borrow
$1 million for a period of 6 months, what is the cost of the bank loan?
Transcribed Image Text:15-4. (Estimating the cost of bank credit) Paymaster Enterprises has arranged to finance its seasonal working-capital needs with a short-term bank loan. The loan will carry a rate of 8 percent per annum with interest paid in advance (discounted). In addition, Paymaster must maintain a minimum demand deposit with the bank of 10 percent of the loan balance throughout the term of the loan. If Paymaster plans to borrow $1 million for a period of 6 months, what is the cost of the bank loan?
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