Milo Corporation has a line of credit with BDO for Ҏ5,000,000 in June 30, 2018 payable on December 31, 2019. The company has no existing deposit with the bank. The bank requires the borrower a compensating balance of 5% and charges 15% for loans availed. a) How much should the company borrow to have a net proceeds of Ҏ5,000,000? b) What is the effective interest rate from this transaction if: b-1) interest rate is paid at the end of the term? b-2) interest is deducted in advance?
Milo Corporation has a line of credit with BDO for Ҏ5,000,000 in June 30, 2018 payable on December 31, 2019. The company has no existing deposit with the bank. The bank requires the borrower a compensating balance of 5% and charges 15% for loans availed. a) How much should the company borrow to have a net proceeds of Ҏ5,000,000? b) What is the effective interest rate from this transaction if: b-1) interest rate is paid at the end of the term? b-2) interest is deducted in advance?
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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Milo Corporation has a line of credit with BDO for Ҏ5,000,000 in June
30, 2018 payable on December 31, 2019. The company has no existing
deposit with the bank. The bank requires the borrower a compensating
balance of 5% and charges 15% for loans availed.
a) How much should the company borrow to have a net proceeds of
Ҏ5,000,000?
b) What is the effective interest rate from this transaction if:
b-1) interest rate is paid at the end of the term?
b-2) interest is deducted in advance?
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