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
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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_.answer thisIgnoring commission and taxes wasSolve this Accounting problem
- Need answerCumberland Furniture wishes to establish a prearranged borrowing agreement with its local commercial bank. The bank’s terms for a line of credit are 3.30% over the prime rate, and each year the borrowing must be reduced to zero for a 30-day period. For an equivalentrevolving credit agreement, the rate is 2.80% over prime with a commitment feeof 0.50% on the average unused balance. With both loans, the required compensating balance is equal to 20% of the amount borrowed. The prime rate is currently 8%. Both agreements have $4 million borrowing limits. The firm expects on average to borrow $2 million during the year no matter which loan agreement it decides to use. What is the effective annual rate under the line of credit? b. What is the effective annual rate under the revolving credit agreement? (Hint: Compute the ratio of the dollars that the firm will pay in interest and commitment fees to the dollars that the firm will effectively have used of.) If the firm does expect to borrow…Your company has arranged a revolving credit agreement for up to $71 million at an interest rate of 1.40 percent per quarter. The agreement also requires your company to maintain a compensating balance of 5 percent of the unused portion of the credit line, to be deposited in a noninterest-bearing account. Your company's short-term investment account at the same bank pays an interest rate of .54 per quarter. What is the effective annual interest rate if your company borrows $36 million for one year?
- 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.A bank offers your firm a revolving credit arrangement for up to $86 million at an interest rate of 2.15 percent per quarter. The bank also requires you to maintain a compensating balance of 2 percent against the unused portion of the credit line, to be deposited in a non-interest-bearing account. Assume you have a short-term investment account at the bank that pays 1.50 percent per quarter, and assume that the bank uses compound interest on its revolving credit loans. a. What is your effective annual interest rate (an opportunity cost) on the revolving credit arrangement if your firm does not use it during the year? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Effective annual interest rate % b. What is your effective annual interest rate on the lending arrangement if you borrow $50 million immediately and repay it in one year? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2…Xu Salon has a line of credit of $150,000 with an interest rate of 1.625 percent per quarter. The credit line requires that 2.25 percent of the unused portion of the credit line be deposited in a non-interest-bearing account as a compensating balance. Xu Salon's short-term investments are earning .35 percent per quarter. If the line of credit goes unused all year, what is the effective annual interest rate on this arrangement? Assume any funds borrowed or invested use compound interest. Give typing answer with explanation and conclusion
- Bank M offers the following terms for a $10 million loan: interest rate: 8 percent for one year on funds borrowed fees: 0.5 percent of the unused balance for the unused term of the loan Bank N offers the following terms FOR A $10 million loan interest rate 6.6 percent for one year on fund borrowed fees: 2 percent origination fee a. Which terms are better if the firm intends to borrow the $10 million for the entire year? b. If the firm plans to use the funds for only three months, which terms are better?During computation, you may round your integer data to two decimal places and your percentages and present value factors to four decimal places.A company received a 10-year $10 million loan commitment from a bank at a fixed rate of 6.50%. The up-front commitment fee is 30 basis points and the unused portion of the loan is charged 12 basis points. The bank borrows a total of $5 million at the beginning of the year and none thereafter. What is the net cost of borrowing the $5 million? b) Explain how a letter of credit is created in international trade and its conversion to a banker's acceptance (BA).