Bridgeport Company has a line of credit with National Bank. Bridgeport can borrow up to $1,160,000 at any time over the course of the Year 1 calendar year. The following table shows the prime rate expressed as an annual percentage, along with the amounts borrowed and repaid during the first two months of Year 1. Bridgeport agreed to pay interest at an annual rate equal to 1 percent above the bank's prime rate. Funds are borrowed or repaid on the first day of each month. Interest is payable in cash on the last day of the month. The interest rate is applied to the outstanding monthly balance. For example, Bridgeport pays 4 percent (3 percent + 1 percent) annual interest on $169,200 for the month of January. Month January February Month Amount borrowed or (repaid) January February $169,200 (36,400) Required: Compute the amount of (a) interest paid and (b) Bridgeport's liability balance at the end of each of the first two months. Prime rate for the (a) Interest Paid month 3% 3.5% (b) Balance End of Month
Bridgeport Company has a line of credit with National Bank. Bridgeport can borrow up to $1,160,000 at any time over the course of the Year 1 calendar year. The following table shows the prime rate expressed as an annual percentage, along with the amounts borrowed and repaid during the first two months of Year 1. Bridgeport agreed to pay interest at an annual rate equal to 1 percent above the bank's prime rate. Funds are borrowed or repaid on the first day of each month. Interest is payable in cash on the last day of the month. The interest rate is applied to the outstanding monthly balance. For example, Bridgeport pays 4 percent (3 percent + 1 percent) annual interest on $169,200 for the month of January. Month January February Month Amount borrowed or (repaid) January February $169,200 (36,400) Required: Compute the amount of (a) interest paid and (b) Bridgeport's liability balance at the end of each of the first two months. Prime rate for the (a) Interest Paid month 3% 3.5% (b) Balance End of Month
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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Transcribed Image Text:Bridgeport Company has a line of credit with National Bank. Bridgeport can borrow up to $1,160,000 at any time over the course of the
Year 1 calendar year. The following table shows the prime rate expressed as an annual percentage, along with the amounts borrowed
and repaid during the first two months of Year 1. Bridgeport agreed to pay interest at an annual rate equal to 1 percent above the
bank's prime rate. Funds are borrowed or repaid on the first day of each month. Interest is payable in cash on the last day of the
month. The interest rate is applied to the outstanding monthly balance. For example, Bridgeport pays 4 percent (3 percent + 1 percent)
annual interest on $169,200 for the month of January.
Month
January
February
Month
Amount
borrowed or
(repaid)
January
February
$169,200
(36,400)
Required:
Compute the amount of (a) interest paid and (b) Bridgeport's liability balance at the end of each of the first two months.
Prime rate
for the
(a) Interest
Paid
month
3%
3.5%
(b) Balance
End of Month
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