A financial institution made a $2,000,000 1-year discount loan at 11% interest, requiring a compensating balance equal to 66% of the face value of the loan. Determine the effective annual rate associated with this loan. (Note: Assume that the firm currently maintains $0 on deposit in the financial institution.) The effective annual rate associated with the loan is ___ %. (Round to two decimal places.)

A financial institution made a $2,000,000 1-year discount loan at 11% interest, requiring a compensating balance equal to 66% of the face value of the loan. Determine the effective annual rate associated with this loan. (Note: Assume that the firm currently maintains $0 on deposit in the financial institution.) The effective annual rate associated with the loan is ___ %. (Round to two decimal places.)

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 41P

See similar textbooks

Similar questions

A customer takes out a loan of $130,000 on January 1, with a maturity date of 36 months, and an annual interest rate of 11%. If 6 months have passed since note establishment, what would be the recorded interest figure at that time? A. $7,150 B. $65,000 C. $14,300 D. $2,383
If Bergen Air Systems takes out a $100,000 loan, with eight equal principal payments due over the next eight years, how much will be accounted for as a current portion of a noncurrent note payable each year?
Determine the annual financing cost of a 1-year (365 day), $13,000 discounted bank loan at a stated annual interest rate of 9.0 percent. Assume that no compensating balance is required. Round your answer to two decimal places. %
Assume Credins Bank made a €10 million, 1-year discount loan at 7% interest, requiring a compensating balance equal to 10% of the face value of the loan. Determine the effective annual rate associated with this loan. (Note: Assume that the firm currently maintains €0 on deposit in Credins Bank.)
Royal Bank charges administration fees of 2.9% of the loan amount per annum. Target Corporation has negotiated an interest rate of 10.5% per annum on a long-term loan the company wants to take from the bank. The compensating balance (b) is 4%, and there is 11% reserve requirement (RR). What is the contractually promised rate of return to the bank from the loan? (Instructions: Please round your answer to 4 decimal places and do not show it in percent. If the answer is 2.5678%, enter 0.0257)
A company borrows $159,300 from a bank. The interest rate on the loan is 6 percent compounded semiannualy. The company agrees to repay the loan in equal semiannualy installments over the next five years. The first payment is to be made six months from now. (Use factor table in Appendix B for calculation) Required 1: What is the amount of each semiannual payment? $ Required 2: In the first payment, what is the amount of interest cancelled? $ Required 3: In the fifth payment, what is the amount of loan paid net of interest? $ Required 4: In the last payment, what is the amount of interest cancelled? $ Required 5: Assume the debt contract has the option to make one extraordinary payment of up to 20% of the principal. If the company decides to exercise the right and make the extra payment together with the 8th payment, how much it must pay in dollars at the 9th payment to pay off the loan? $
Royal Company holds a loan with an interest rate of 7.00% compounded semi-annually. Calculate the effective rate of the loan. Find the equivalent interest rates for the following: a. Nominal interest rate compounded quarterly that is equivalent to 5% compounded semi-annually. % Round to two decimal places b. Nominal interest rate compounded monthly that is equivalent to 3% compounded quarterly. % Round to two decimal places c. Nominal interest rate compounded semi-annually that is equivalent to 3.3% compounded quarterly. % Round to two decimal places
The simple interest charged on a 11-month loan of $54,000 is $732. Find the simple interest rate. (Round your answer to one decimal place.)
A company borrows $126,500 from a bank. The interest rate on the loan is 10 percent compounded semiannualy. The company agrees to repay the loan in equal semiannualy installments over the next 10 years. The first payment is to be made six months from now. (Use factor table in Appendix B for calculation) Required 1: What is the amount of each semiannual payment? $ Required 2: In the first payment, what is the amount of principal cancelled? $ Required 3: In the second payment, what is the amount of interest paid? $ Required 4: In the last payment, what is the amount of the last payment to cancel the loan? $ Required 5: Assume the debt contract has the option to make one extraordinary payment of up to 25% of the principal. If the company decides to exercise the right and make the extra payment together with the 18th payment, how much it must pay in dollars at the 18th payment to pay off the loan? $ Required 6: What is the amount reported in the annual audited balance sheet for…
Zenith Bank charges an interest rate of 16.9% per annum on a loan to Samson Ltd. The bank requires borrowers to keep compensating balance (b) on loans of 3% and there is 7% reserve requirement (RR). The bank also charges administration fees of 2.9% of the loan amount per annum. What is the contractually promised rate of return to the bank from the loan? (Instructions: Please round your answer to four decimal places. Please also keep your answer in decimals not percentage terms. e.g. if the answer is 8.157%, enter 0.0816) Answer:
Ackerman Company enters into an IRG arrangement with Westbank for a 9 months, $800,000 loan starting 3 months from now. The IRG rate is at 11% and the bank quotes a premium of $4,000. REQUIRED: Compute for the effective interest rate if the actual interest rate 3 months from now is 8%.
Your company are offered a bank loan with an annual percentage ate (APR) of 5 percent with quarterly compounding. What is the effective annual rate (EAR) on this loan? (Answers are rounded to two decimals) a) 5.00 % b) 21.55 % c) 5.09 % d) 1.25 % e) 105.09 %