Carry Trade, Inc., borrows yen when the yen is trading at ¥120/US$. If the nominal annual interest rate of the loan is5% and at the end of the year the yen trades at ¥130/USS, what is the effective annual interest rate of the loan?The effective annual interest rate is %. (Round to two decimal places. Enter a negative number for a depreciationof the yen.)

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Answered: Carry Trade, Inc., borrows yen when the…

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter4: Time Value Of Money

Section: Chapter Questions

Problem 3STP

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A firm sells its accounts receivables to a factor at a 3.5% discount. The average collection period is 3 month. a. What is the effective annual interest rate on this arrangement? (Round your answer to 2 decimal places.) b. What is the implicit effective annual interest rate if the average collection period is 5 months? (Round your answer to 2 decimal places.)
Zenith Bank charges an interest rate of 16.9% per annum on a loan to Samson Ltd. The bank requires borrowers to keep compensating balance (b) on loans of 3% and there is 7% reserve requirement (RR). The bank also charges administration fees of 2.9% of the loan amount per annum. What is the contractually promised rate of return to the bank from the loan? (Instructions: Please round your answer to four decimal places. Please also keep your answer in decimals not percentage terms. e.g. if the answer is 8.157%, enter 0.0816) Answer:
a. Abc Investment Ltd., plans to borrow Ghc100,000 for a 90-day period from Lloyds Finance Company. Abc investment would repay the principal amount plus Ghc5,000 interest at maturity. Determine and calculate the Annual Percentage Rate of the credit to Abc Company Ltd. b. Belinda Limited has annual credit sales of Ghc5 million and cost of sales of GHC1.8 million. The company’s current assets consist of inventory and trade receivables. Current liabilities consist of accounts payables and an overdraft facility with an average interest rate of 10% per annum. The company gives 60 days credit to its customers and is allowed an average of 30 days credit by trade suppliers. The company has an operating cycle of 90 days. Other relevant information: Current ratio of Ait Ltd 1.5:1 Cost of long-term finance to Ait Ltd is 12% per annum Required: Calculate the, (i) Size of the overdraft of Ait Ltd (ii) Net working capital of the company (iii) Total cost of financing its current assets c.…
If a firm buys under terms of 1/15, net 40, but actually pays on the 20th day and still takes the discount, what is the nominal cost of its nonfree trade credit? Assume a 365-day year. Do not round intermediate calculations. Round your answer to two decimal places.
Bank A offers loans at an 8% nominal rate (its APR) butrequires that interest be paid quarterly; that is, it uses quarterly compounding. Bank Bwants to charge the same effective rate on its loans, but it wants to collect interest ona monthly basis, that is, to use monthly compounding. What nominal rate must BankB set?
Royal Bank charges administration fees of 2.9% of the loan amount per annum. Target Corporation has negotiated an interest rate of 10.5% per annum on a long-term loan the company wants to take from the bank. The compensating balance (b) is 4%, and there is 11% reserve requirement (RR). What is the contractually promised rate of return to the bank from the loan? (Instructions: Please round your answer to 4 decimal places and do not show it in percent. If the answer is 2.5678%, enter 0.0257)
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A credit card company charges 23.0% interest per year, compounded monthly. What effective annual interest rate does the company charge? Note: The effective annual interest rate is the return on an investment or the rate owed in interest on a loan when compounding is taken into account. O 25.71% 25.22% 25.59% O24.95% G
A bank pays a simple interest rate of 4.1% on 30 to 179-day GICs of at least $100,000. What is the effective annualized rate of return:a) On a 40-day GIC?b) On a 160-day GIC?
Chase Bank offers your firm a discount interest loan at 9 percent for up to $33 million and, in addition, requires you to maintain a 6 percent compensating balance against the amount borrowed. What is the effective annual interest rate on this lending arrangement? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Effective annual interest rate % Suomi
Your company has arranged a revolving credit agreement for up to $82 million at an interest rate of 1.51 percent per quarter. The agreement also requires your company to maintain a compensating balance of 4 percent of the unused portion of the credit line, to be deposited in a non-interest bearing account. Your company's short-term investment account at the same bank pays an interest rate of .65 per quarter. What is the effective annual interest rate if your company does not use the revolving credit arrangement during the year? Multiple Choice O O O O 3.30% 6.18% 3.85% 2.89% 2.63%
First National Bank charges 13.4 percent compounded monthly on its business loans. First United Bank charges 13.7 percent compounded semiannually. Calculate the EAR for First National Bank and First United Bank. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) As a potential borrower, which bank would you go to for a new loan?

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