Montross Inc. needs to raise $300,000 for a nine-month term. Montross’s bank has offered to lend Montross the money at a 12.00% simple interest rate. Montross will receive the $300,000 upon approval of the loan and will pay back the principal and interest at maturity. Calculate the interest payment, the amount of cash received, the annual percentage rate (APR), and the effective annual rate (EAR) of this loan. Value Interest payment ______________ Amount of cash received ______________ Annual percentage rate (APR) ______________ Effective annual rate (EAR) ______________
Montross Inc. needs to raise $300,000 for a nine-month term. Montross’s bank has offered to lend Montross the money at a 12.00% simple interest rate. Montross will receive the $300,000 upon approval of the loan and will pay back the principal and interest at maturity. Calculate the interest payment, the amount of cash received, the annual percentage rate (APR), and the effective annual rate (EAR) of this loan. Value Interest payment ______________ Amount of cash received ______________ Annual percentage rate (APR) ______________ Effective annual rate (EAR) ______________
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Computing the cost of a simple interest loan
Montross Inc. needs to raise $300,000 for a nine-month term. Montross’s bank has offered to lend Montross the money at a 12.00% simple interest rate. Montross will receive the $300,000 upon approval of the loan and will pay back the principal and interest at maturity.
Calculate the interest payment, the amount of cash received, the annual percentage rate (APR), and the effective annual rate (EAR) of this loan.
|
|
Value
|
|---|---|
| Interest payment | ______________ |
| Amount of cash received | ______________ |
| Annual percentage rate (APR) | ______________ |
| Effective annual rate (EAR) | ______________ |
Suppose the terms of the loan require that Montross maintain a compensating balance equal to 20% of the loan balance, and Montross will have to borrow the compensating balance from the bank.
Calculate the interest payment, the amount of cash received, the annual percentage rate (APR), and the effective annual rate (EAR) of the loan considering the compensating balance requirement.
|
|
Value
|
|---|---|
| Interest payment | ______________ |
| Amount of cash borrowed | ______________ |
| Annual percentage rate (APR) | ______________ |
| Effective annual rate (EAR) | ______________ |
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