(Related to Checkpoint 18.2) (Calculating the cost of a short-term bank loan) On July 1, 2016, the Southwest Forging Corporation arranged for a line of credit with the First National Bank (FNB) of Dallas. The terms of the agreement call for a $100,000 maximum loan with interest set at 1 percent over prime. In addition, the firm has to maintain a 22 percent compensating balance in its demand deposit account throughout the year. The prime rate is currently 6 percent (assume a 360-day year). a. If Southwest normally maintains a $22,000 to $32,000 balance in its checking account with FNB of Dallas, what is the annualized cost of credit through the line-of-credit agreement when the maximum loan amount is used for a full year? a. If Southwest normally maintains a $22,000 to $32,000 balance in its checking account with FNB of Dallas, the effective cost of credit under the line-of-credit agreement when the maximum loan amount is used for a full year is %. (Type a whole percentage.)
(Related to Checkpoint 18.2) (Calculating the cost of a short-term bank loan) On July 1, 2016, the Southwest Forging Corporation arranged for a line of credit with the First National Bank (FNB) of Dallas. The terms of the agreement call for a $100,000 maximum loan with interest set at 1 percent over prime. In addition, the firm has to maintain a 22 percent compensating balance in its demand deposit account throughout the year. The prime rate is currently 6 percent (assume a 360-day year). a. If Southwest normally maintains a $22,000 to $32,000 balance in its checking account with FNB of Dallas, what is the annualized cost of credit through the line-of-credit agreement when the maximum loan amount is used for a full year? a. If Southwest normally maintains a $22,000 to $32,000 balance in its checking account with FNB of Dallas, the effective cost of credit under the line-of-credit agreement when the maximum loan amount is used for a full year is %. (Type a whole percentage.)
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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