Exercise 10-5A (Algo) Calculations for a line of credit LO 10-2 Colson Company has a line of credit with Federal Bank. Colson can borrow up to $373,000 at any time over the course of the Year 1 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 Year 1. 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 5.25 percent (3.25 percent + 2.00 percent) annual interest on $84,800 for the month of January. Month Amount Borrowed or (Repaid) January February March April Month January February March April Required: a. Compute the amount of interest that Colson will pay on the line of credit for the first four months of Year 1. Note: Do not round intermediate calculations. Round your final answers to the nearest whole dollar. $ 84,800 124,000 (15,200) 26,400 Prime Rate for the Interest Paid Month 3.25% 2.25 2.75 3.25 b. Compute the amount of Colson's liability at the end of each of the first four months. Note: Round your final answers to the nearest whole dollar.
Exercise 10-5A (Algo) Calculations for a line of credit LO 10-2 Colson Company has a line of credit with Federal Bank. Colson can borrow up to $373,000 at any time over the course of the Year 1 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 Year 1. 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 5.25 percent (3.25 percent + 2.00 percent) annual interest on $84,800 for the month of January. Month Amount Borrowed or (Repaid) January February March April Month January February March April Required: a. Compute the amount of interest that Colson will pay on the line of credit for the first four months of Year 1. Note: Do not round intermediate calculations. Round your final answers to the nearest whole dollar. $ 84,800 124,000 (15,200) 26,400 Prime Rate for the Interest Paid Month 3.25% 2.25 2.75 3.25 b. Compute the amount of Colson's liability at the end of each of the first four months. Note: Round your final answers to the nearest whole dollar.
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:Exercise 10-5A (Algo) Calculations for a line of credit LO 10-2
Colson Company has a line of credit with Federal Bank. Colson can borrow up to $373,000 at any time over the course of the Year 1
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 Year 1. 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 5.25 percent (3.25 percent + 2.00 percent)
annual interest on $84,800 for the month of January.
Month
January
February
Month
Amount Borrowed
or (Repaid)
January
February
March
April
$ 84,800
124,000
(15,200)
26,400
Prime Rate
for the
March
April
Required:
a. Compute the amount of interest that Colson will pay on the line of credit for the first four months of Year 1.
Note: Do not round intermediate calculations. Round your final answers to the nearest whole dollar.
Interest Paid
Month
3.25%
2.25
2.75
3.25
b. Compute the amount of Colson's liability at the end of each of the first four months.
Note: Round your final answers to the nearest whole dollar.
Transcribed Image Text:b. Compute the amount of Colson's liability at the end of each of the first four months.
Note: Round your final answers to the nearest whole dollar.
Month
January
February
March
April
Balance End of
Month
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