Carey Company is borrowing $375,000 for one year at 12.5 percent from Second Intrastate Bank. The bank requires a 15 percent compensating balance. The principal refers to funds the firm can utilize effectively (Amount borrowed - Compensating balance). a. What is the effective rate of interest? Note: Use a 360-day year. Input your answer as a percent rounded to 2 decimal places. Effective rate of interest % b. What would the effective rate be if Carey were required to make 12 equal monthly payments to retire the loan? Note: Use a 360-day year. Input your answer as a percent rounded to 2 decimal places.
Carey Company is borrowing $375,000 for one year at 12.5 percent from Second Intrastate Bank. The bank requires a 15 percent compensating balance. The principal refers to funds the firm can utilize effectively (Amount borrowed - Compensating balance). a. What is the effective rate of interest? Note: Use a 360-day year. Input your answer as a percent rounded to 2 decimal places. Effective rate of interest % b. What would the effective rate be if Carey were required to make 12 equal monthly payments to retire the loan? Note: Use a 360-day year. Input your answer as a percent rounded to 2 decimal places.
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
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Transcribed Image Text:Carey Company is borrowing $375,000 for one year at 12.5 percent from Second Intrastate Bank. The bank requires a 15 percent
compensating balance. The principal refers to funds the firm can utilize effectively (Amount borrowed - Compensating balance)
a. What is the effective rate of interest?
Note: Use a 360-day year. Input your answer as a percent rounded to 2 decimal places.
Effective rate of interest
%
b. What would the effective rate be if Carey were required to make 12 equal monthly payments to retire the loan?
Note: Use a 360-day year. Input your answer as a percent rounded to 2 decimal places.
Effective rate of interest
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