Cost of Bank Loans Gifts Galore Inc. borrowed $1.85 million from National City Bank. The loan was made at a simple annual interest rate of 13% a year for 3 months. A 15% compensating balance requirement raised the effective interest rate. Do not round intermediate calculations. Round your answers to two decimal places. a. The nominal annual rate on the loan was 11.5%. What is the true effective rate? b. What would be the effective cost of the loan if the note required discount interest? c. What would be the nominal annual interest rate on the loan if the bank did not require a compensating balance but required repayment in three equal monthly installments?
Cost of Bank Loans Gifts Galore Inc. borrowed $1.85 million from National City Bank. The loan was made at a simple annual interest rate of 13% a year for 3 months. A 15% compensating balance requirement raised the effective interest rate. Do not round intermediate calculations. Round your answers to two decimal places. a. The nominal annual rate on the loan was 11.5%. What is the true effective rate? b. What would be the effective cost of the loan if the note required discount interest? c. What would be the nominal annual interest rate on the loan if the bank did not require a compensating balance but required repayment in three equal monthly installments?
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
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Transcribed Image Text:Cost of Bank Loans
Gifts Galore Inc. borrowed $1.85 million from National City Bank. The loan was made at a simple annual interest rate of 13% a year for 3 months. A 15%
compensating balance requirement raised the effective interest rate. Do not round intermediate calculations. Round your answers to two decimal places.
a. The nominal annual rate on the loan was 11.5%. What is the true effective rate?
%
b. What would be the effective cost of the loan if the note required discount interest?
c. What would be the nominal annual interest rate on the loan if the bank did not require a compensating balance but required repayment in three equal
monthly installments?
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