ABC Company is considering to establish a line of credit with a local bank to make up for the cash deficit for the next three months. The company expects a 60%chance for a $287.945 deficit and a 40% chance for no deficit at all. The line of credit charges 0.56% of interest rate per month on the amount borrowed plus acommitment fee of $2,500 for a quarter. It also requires a 7% compensation balance for outstanding loans. The company can reinvest any excess cash at an annualrate of 8%. What will the expected cost of establishing a line of credit be? Round your answer to the nearest dollar. (Hint: Refer to a numerical example in short-termfinancing choices.)O $5,617$5,602O $5,612O $5.608O $5,621

Line of credit refers to the type of loan which should be repaid after a certain time period after…

Answered: ABC Company is considering to establish…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Data Back-Up Systems has obtained a $29,000, 90-day bank loan at an annual interest rate of 15%, payable at maturity. (Note: Assume a 365-day year.) a. How much interest (in dollars) will the firm pay on the 90-day loan? b. Find the 90-day rate on the loan. c. Annualize your result in part b to find the effective annual rate for this loan, assuming that it is rolled over every 90 days throughout the year under the same terms and circumstances. Answers a. The amount of interest on the loan is $___. (Round to the nearest cent.) b. The effective 90-day rate is___%. (Round to two decimal places.) c. The effective annual rate is___%. (Round to two decimal places.)
A loan of $15,000 is to be financed over a period of 24 months. The agency quotes a nominal interest rate of 6% for the first 12 months and a nominal interest rate of 9% for any remaining unpaid balance after 12 months with both rates compounded monthly. At these rates, what equal end-of-the-month payment for 24 months would be required in order to repay the loan? (Choose the closest answer)
Fishing Designs has arranged to borrow $20,000 today at 10% interest. The loan is to be repaid with end-of-year payments of $3,000 at the end of years 1 through 4. At the end of year 5, the remainder will be paid. What is the year 5 payment? $ Round entry to the nearest dollar. Tolerance is ±4.
Melody Dairy has a line of credit with its bank. The firm plans to borrow $400,000 at a rate of 10 percent. The bank requires a 15% compensating balance and the firm currently maintains $20,000 in its account at the bank that can be used to meet the compensating balance requirement. Determine the annual finance cost to Melody of this loan.
Grecian Tile Manufacturing of Athens, Georgia, borrows $1,500,000 at LIBOR plus a lending margin of 1.39 percent per annum on a six-month rollover basis from a London bank. If six-month LIBOR is 5.20 percent over the first six-month interval and 5.445 percent over the second six-month interval, how much will Grecian Tile pay in interest over the first year of its Eurodollar loan? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Interest
Travis International has a debt payment of $2.36 million that it must make 4 years from today. The company does not want to come up with the entire amount at that time, so it plans to make equal monthly deposits into an account starting 1 month from now to fund this liability. If the company can earn a return of 5.43 percent compounded monthly, how much must it deposit each month?
(Related to Checkpoint 18.2) (Estimating the cost of bank credit) Paymaster Enterprises has arranged to finance its seasonal working-capital needs with a short-term bank loan. The loan will carry a rate of 16 percent per annum with interest paid in advance (discounted). In addition, Paymaster must maintain a minimum demand deposit with the bank of 7 percent of the loan balance throughout the term of the loan. If Paymaster plans to borrow $110,000 for a period of 6 months, what is the annualized cost of the bank loan?
Company is considering to establish a line of credit with a local bank to make up for the cash deficit for the next three months. The company expects a 60% chance for a $240,938 deficit and a 40% chance for no deficit at all. The line of credit charges 0.59% of interest rate per month on the amount borrowed plus a commitment fee of $2,500 for a quarter. It also requires a 7% compensation balance for outstanding loans. The company can reinvest any excess cash at an annual rate of 8%. What will the expected cost of establishing a line of credit be? Round your answer to the nearest dollar. (Hint: Refer to a numerical example in short-term financing choices.) Group of answer choices: $5,255 $5,240 $5,251 $5,260 $5,246
The Second National Bank of Fullerton advertises an APR of 15%, but it indicates in the “small print” that compounding occurs on a monthly basis for personal loans with no collateral required. This is a multi-part question. Once an answer is submitted, you will be unable to return to this part. Determine the APY you would pay using an equation. The APY paid would be % per year.
A loan of $1420 taken out on June 7 requires three payments. The first payment is due on July 7. The second payment is twice as large as the first payment and is due on August 19. The final payment, due on November 2, is three times as large as the first payment. If the focal date is June 7, what is the size of each of the three payments at an interest rate of 4.9%? The first payment is $ the second payment is $, and the third payment is $ (Round the final answers to the nearest cent as needed. Round all intermediate values to sx decimal places as needed)
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
ABC Company is considering to establish a line of credit with a local bank to make up for the cash deficit for the next three months. The company expects a 60% chance for a $273,446 deficit and a 40% chance for no deficit at all. The line of credit charges 0.52% of interest rate per month on the amount borrowed plus a commitment fee of $2,500 for a quarter. It also requires a 9% compensation balance for outstanding loans. The company can reinvest any excess cash at an annual rate of 8%. What will the expected cost of establishing a line of credit be? Round your answer to the nearest dollar. (Hint: Refer to a numerical example in short-term financing choices.) Group of answer choices $5,313 $5,321 $5,304 $5,309 $5,317

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