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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Ignoring commission 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 thisNeed 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…
- Cloud Venture has a line of credit with a local bank of $75,000. The loan agreement calls for interest of 6 percent with a compensating balance requirement of 3 percent that is based on the total amount borrowed. What is the effective interest rate if the firm needs $58,000 for one year to finance a fixed asset purchase?A small business received a five-year $1,000,000 loan at a subsidized rate of 3 percent per year. The firm will pay 3 percent in annual interest and will pay the principal at the end of the five years. If the market interest rate on similar loans is 6 percent per year, what is the NPV of the loan? (Ignore taxes.) +$348,369 O -$137,391 0 - $501,595 O +$126,371Xu 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
- 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.) $74,098Bank 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?Leven Corporation negotiated a short-term loan of $685,000. The loan is due in 10 months and carries a 6.86 interest rate. Use simple interest to calculate the total amount of thetioan. If necessary, round the answer to the nearest cent.
- What is the effective annual rate on this loan for this financial accounting question?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).