Cost of Bank LoansGifts Galore Inc. borrowed $1.6 million from National City Bank. Theloan was made at a simple annual interest rate of 12% a year for 3months. A 25% compensating balance requirement raised the effectiveinterest rate. Do not round intermediate calculations. Round youranswers to two decimal places.a. The nominal annual rate on the loan was 11.5%. What is the trueeffective rate?12.00%b. What would be the effective cost of the loan if the note requireddiscount interest?12.38%c. What would be the nominal annual interest rate on the loan if thebank did not require a compensating balance but requiredrepayment in three equal monthly installments?%

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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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The interest rate on a $15,300 loan is 9.7% compounded semiannually. Semiannual payments will pay off the loan in nine years. (Do not round intermediate calculations. Round the PMT and final answers to 2 decimal places.) a. Calculate the interest component of Payment 12. $ b. Calculate the principal component of Payment 5. Principal c. Calculate the interest paid in Year 8. Interest paid d. How much do Payments 5 to 8 inclusive reduce the principal balance? Principal reduction Interest
Cost of Bank Loans Del Hawley, owner of Hawley's Hardware, is negotiating with First City Bank for a 1-year loan of $65,000. 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 14% annual rate on a simple interest loan, with no compensating balance required and interest due at the end of the year. 14 b. A 10% annual rate on a simple interest loan, with a 20% compensating balance required and interest due at the end of the year. 12.5 c. An 8% annual rate on a discounted loan, with a 15% compensating balance. 9.41 % 9.38 % d. Interest figured as 9% of the $65,000 amount, payable at the end of the year, but with the loan amount repayable in monthly installments during the year. Alternative A V % % Which alternative has the lowest effective annual interest rate?
\A man loans $4,000 at one interest rate and $5,000 at a 1% greater rate. The $5,000 loan earns $110 more per year than the $4,000 loan earns. Determine the following: The interest rates. Explain the concepts/principles that were considered and the factors that affected the condition of item (a)
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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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A firm borrows $200,000 at 10 percent from a bank with a compensating balance of 20 percent. What is the effective rate of interest if the loan is discounted and the principal is repaid at the end of one year? 15.28% 16.28% 17.28% 14.28% 19.55%
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Navy Bank requires borrowers to keep a 13 percent compensating balance. Gorman Jewels borrow $380,000 at a 6 percent stated APR. What is the effective interest rate on the loan? (Round answer to 2 decimal places, e.g. 12.25%.) Effective interest rate ________ %

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