Cost of Bank Loans Del Hawley, owner of Hawley's Hardware, is negotiating with First City Bank for a 1-year loa of $93,000. First City has offered Hawley the alternatives listed below. Calculate the effecti annual interest rate for each alternative. Do not round intermediate calculations. Round you answers to two decimal places. a. A 11% annual rate on a simple interest loan, with no compensating balance required and interest due at the end of the year.
Cost of Bank Loans Del Hawley, owner of Hawley's Hardware, is negotiating with First City Bank for a 1-year loa of $93,000. First City has offered Hawley the alternatives listed below. Calculate the effecti annual interest rate for each alternative. Do not round intermediate calculations. Round you answers to two decimal places. a. A 11% annual rate on a simple interest loan, with no compensating balance required and interest due at the end of the year.
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:Cost of Bank Loans
Del Hawley, owner of Hawley's Hardware, is negotiating with First City Bank for a 1-year loan
of $93,000. First City has offered Hawley the alternatives listed below. Calculate the effective
annual interest rate for each alternative. Do not round intermediate calculations. Round your
answers to two decimal places.
a. A 11% annual rate on a simple interest loan, with no compensating balance required and
interest due at the end of the year.
11
b. A 8% annual rate on a simple interest loan, with a 20% compensating balance required
and interest due at the end of the year.
10
c. A 8.5% annual rate on a discounted loan, with a 15% compensating balance.
*
8.5
7
%
X
%
d. Interest figured as 7% of the $93,000 amount, payable at the end of the year, but with the
loan amount repayable in monthly installments during the year.
Alternative B #
%
%
Which alternative has the lowest effective annual interest rate?
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