A local credit union negotiates the purchase of a one-year interest rate cap with a cap rate of 4.75 percent with a national bank. The option has a notional principal of 1.5million and costs 2,800. In one year, interest rates are 5.65 percent. The local credit union's net profit, ignoring commissions and taxes, was_.answer this

A local credit union negotiates the purchase of a one-year interest rate cap with a cap rate of 4.75 percent with a national bank. The option has a notional principal of 1.5million and costs 2,800. In one year, interest rates are 5.65 percent. The local credit union's net profit, ignoring commissions and taxes, was_.answer this

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 14P

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A local credit union negotiates the purchase of a one-year interest rate cap with a cap rate of 4.75 percent with a national bank. The option has a notional principal of 1.5million and costs 2,800. In one year, interest rates are 5.65 percent. The local credit union's net profit, ignoring commissions and taxes, was_.
A local finance company quotes a 17 percent interest rate on one-year loans. So, if you borrow $30,000, the interest for the year will be $5,100. Because you must repay a total of $35,100 in one year, the finance company requires you to pay $35,100/12, or $2,925.00, per month over the next 12 months. a. What rate would legally have to be quoted? b. What is the effective annual rate?
A local finance company quotes a 12 percent interest rate on one-year loans. So, if you borrow $30,000, the interest for the year will be $3,600. Because you must repay a total of $33,600 in one year, the finance company requires you to pay $33,600/12, or $2,800.00, per month over the next 12 months. a.What rate would legally have to be quoted? b.What is the effective annual rate?
A local finance company quotes an interest rate of 15.6 percent on one- year loans. So, if you borrow $36,000, the interest for the year will be $5,616. Because you must repay a total of $41,616 in one year, the finance company requires you to pay $41,616/12, or $3,468.00 per month over the next 12 months. a. What rate would legally have to be quoted? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. b. What is the effective annual rate? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. a. APR b. EAR % %
Del Hawley, owner of Hawleys Hardware, is negotiating with First City Bank for a 1-year loan of 50,000. First City has offered Hawley the alternatives listed here. Calculate the effective annual interest rate for each alternative. Which alternative has the lowest effective annual interest rate? a. A 12% annual rate on a simple interest loan, with no compensating balance required and interest due at the end of the year b. A 9% annual rate on a simple interest loan, with a 20% compensating balance required and interest due at the end of the year c. An 8.75% annual rate on a discounted loan, with a 15% compensating balance d. Interest figured as 8% of the 50,000 amount, payable at the end of the year, but with the loan amount repayable in monthly installments during the year
Mr. Fernandez has applied for a revolving credit line of $ 9 million to assist in marketing a new product line. The terms of the loan will be as follows:(a) All the loans will be discount loans.(b) A fixed commitment fee of 0.2 percent will be charged.(c) The compensatory balance requirements will be 8 percent on the total credit line and 6 percent on the outstanding loans.(d) The bank will pay 2 percent interest on demand deposits.(e) The rate of interest to be charged will be the prime rate plus 3 percent.(f) The bank will use the "actual/360" accrual method to compute interest payments.(g) The credit line will be extended for a period of five years.The loan officer estimates that Mr. Fernandez will use about 67 percent of the credit line on average. If the prime rate is 10 percent and the required reserve rate on demand deposits is 16 percent, what is the effective cost to Mr. Fernandez?
Jérôme Kerviel Bank charges an APR of 11.80 per cent, compounded monthly, on its business loans. Société Générale charges a six per cent semiannual rate on similar loans. Which option is best from the borrower's point of view? A) Jérôme Kerviel Bank's loan is the best option because its EAR is 12.46 per cent. B) Société Générale's loan is the best option because its EAR is 12.36 per cent. C) Jérôme Kerviel Bank's loan is the best option because its monthly rate is 0.98 per cent, which is smaller than Société Générale's monthly rate at one per cent. D) Société Générale's loan is the best option because its EAR is 6.09 percent. E) Both options are identical from a borrower's perspective.
Van Buren Resources Inc. is considering borrowing $100,000 for 182 days from its bank. Van Buren will pay $6,000 of interest at maturity, and it will repay the $100,000 of principal at maturity. a. Calculate the loan’s annual financing cost. b. Calculate the loan’s annual percentage rate. c. What is the reason for the difference in your answers to Parts a and b?
You borrow $1,000 from the bank and agree to repay the loan over the next year in 12 equal monthly payments of $90. However, the bank also charges you a loan initiation fee of $18, which is taken out of the initial proceeds of the loan. What is the effective annual interest rate on the loan, taking account of the impact of the initiation fee? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Use a financial calculator or Excel. Effective annual interest rate 1.49 %
Simple Simon's Bakery purchases supplies on terms of 1.1/10, net 25. If Simple Simon's chooses to take the discount offered, it must obtain a bank loan to meet its short-term financing needs. A local bank has quoted Simple Simon's owner an interest rate of 10.6% on borrowed funds. Should Simple Simon's enter the loan agreement with the bank and begin taking the discount? (Hint: Use 365 days for a year.) The cost of forgoing the discount is %. (Round to one decimal place.) Should Simple Simon's enter the loan agreement with the bank and begin taking the discount? (Select the best choice below.) A. Simple Simon's should enter into the loan agreement but not begin taking the discount. B. Need more information to answer the question. OC. Simple Simon's should enter into the loan agreement with the bank and begin taking the discount. D. Simple Simon's should not enter into the loan agreement but should begin taking the discount.
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?
Simple Simon's Bakery purchases supplies on terms of 1.7/10, net 25. If Simple Simon's chooses to take the discount offered, it must obtain a bank loan to meet its short-term financing needs. A local bank has quoted Simple Simon's owner an interest rate of 10.2% on borrowed funds. Should Simple Simon's enter the loan agreement with the bank and begin taking the discount? (Hint: Use 365 days for a year.) The cost of forgoing the discount is %. (Round to one decimal place.) Should Simple Simon's enter the loan agreement with the bank and begin taking the discount? (Select the best choice below.) A. Simple Simon's should enter into the loan agreement with the bank and begin taking the discount. B. Simple Simon's should not enter into the loan agreement but should begin taking the discount. C. Simple Simon's should enter into the loan agreement but not begin taking the discount. D. Need more information to answer the question.