Gifts Galore Inc. borrowed $1.6 million from National City Bank. The loan was made at a simple annual interest rate of 12% a year for 3 months. A 25% 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?
Gifts Galore Inc. borrowed $1.6 million from National City Bank. The loan was made at a simple annual interest rate of 12% a year for 3 months. A 25% 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:Gifts Galore Inc. borrowed $1.6 million from National City Bank. The loan was made at a simple annual interest rate of 12% a year for 3 months. A 25% 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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