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 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_.

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

See similar textbooks

Similar questions

Cumberland 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…
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…
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.
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?
Cerise Company would record a note payable of_____, if the terms of the loan with a bank are as follows: Cersie Company would have to make one $102,000 payment in two years. Assume the market interest rate is 10% per year and the company rounds to the nearest dollar. (The present value of $1 for two periods at 10% is 0.82645). a.) $94,498 b.) $84,298 c.) $10,200 d.) $74,098
Answer? ? General Accounting
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 % %
A bank offers your firm a revolving credit arrangement for up to $68 million at an interest rate of 1.70% per quarter. The bank also requires you to maintain a compensating balance of 4% 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 1.05% per quarter, and assume that the bank uses compound interest on its trevolving credit loans. (Do not round intermediate calculetions. Round the final answers to 2 decimal places.) 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? Effective annual Interest rate b. What is your effective annual interest rate on the lending arrangement if you borrow $35 million immediately and repay it in one year? Effective annual interest rate 1% c. What is your effective annual interest rate if you borrow $68 milion Immediately and repoy it in one…
Yoo, Incorporated, has arranged a line of credit that allows it to borrow up to $51 million at any time. The interest rate is 627 percent per month. Additionally, the company must deposit 5 percent of the amount borrowed in a noninterest-bearing account. The bank uses compound interest on its line-of-credit loans. If the company needs $27 million for 8 months, how much will it pay in interest? Multiple Choice $1.307,50417 $1,457,29019 $1619,200.22 $1.230.592.16) $1,384,41618
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?
Can you complete parts a through d for me?
Paul and Sandy Moede signed an $8,100 note at Citizen's Bank. Citizen's charges a 6.4% discount rate. Assume the loan is for 260 days. a. Find the proceeds. Note: Use 360 days a year. Round your intermediate calculations and final answer to the nearest cent. Proceeds b. Find the effective rate charged by the bank. Note: Use 360 days a year. Do not round intermediate calculations. Round your answer to the nearest tenth percent. Effective rate %