Colson Company has a line of credit with Federal Bank. Colson can borrow up to $370,500 at any time over the course of the calendar year. The following table shows the prime rate expressed as an annual percentage along with the amounts borrowed and repaid during the first four months of the year. Colson agreed to pay interest at an annual rate equal to 2.00 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, Colson pays 6.25 percent (4.25 percent + 2.00 percent) annual interest on $78,800 for the month of January Month January February March April Anount Borrowed or (Repaid) $ 78,800 Prine Rate for the Honth 4.25% 118,800 (18,100) 27,680 3.25 3.75 4.25 Required a. Compute the amount of interest that Colson will pay on the line of credit for the first four months of the year. b. Compute the amount of Colson's liability at the end of each of the first four months.
Colson Company has a line of credit with Federal Bank. Colson can borrow up to $370,500 at any time over the course of the calendar year. The following table shows the prime rate expressed as an annual percentage along with the amounts borrowed and repaid during the first four months of the year. Colson agreed to pay interest at an annual rate equal to 2.00 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, Colson pays 6.25 percent (4.25 percent + 2.00 percent) annual interest on $78,800 for the month of January Month January February March April Anount Borrowed or (Repaid) $ 78,800 Prine Rate for the Honth 4.25% 118,800 (18,100) 27,680 3.25 3.75 4.25 Required a. Compute the amount of interest that Colson will pay on the line of credit for the first four months of the year. b. Compute the amount of Colson's liability at the end of each of the first four months.
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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am. 105.
Transcribed Image Text:Colson Company has a line of credit with Federal Bank. Colson can borrow up to $370,500 at any time over the course of the calendar
year. The following table shows the prime rate expressed as an annual percentage along with the amounts borrowed and repaid
during the first four months of the year. Colson agreed to pay interest at an annual rate equal to 2.00 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, Colson pays 6.25 percent (4.25 percent +2.00 percent) annual
Interest on $78,800 for the month of January.
Amount Borrowed
or (Repaid)
Prine Rate for
the Month
Month
January
$ 78,880
February
118,880
March
April
(18,180)
27,600
4.25%
3.25
3.75
4.25
Required
a. Compute the amount of interest that Colson will pay on the line of credit for the first four months of the year.
b. Compute the amount of Colson's liability at the end of each of the first four months.
Complete this question by entering your answers in the tabs below.
Required A
Required B
Compute the amount of interest that Colson will pay on the line of credit for the first four months of the year. (Round your
answers to the nearest whole dollar.)
Month
January
February
March
April
Interest Paid
<Required A
Required B >
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