(Related to Checkpoint 18.2) (Estimating the cost of bank credit) Paymaster Enterprises has arranged to finance its seasonal working-capital needs with a short-term bank loan. The loan will carry a rate of 12 percent per annum with interest paid in advance (discounted). In addition, Paymaster must maintain a minimum demand deposit with the bank of 7 percent of the loan balance throughout the term of the loan. If Paymaste plans to borrow $100,000 for a period of 2 months, what is the annualized cost of the bank loan? ... The annualized cost of the bank loan is%. (Round to two decimal places.)
(Related to Checkpoint 18.2) (Estimating the cost of bank credit) Paymaster Enterprises has arranged to finance its seasonal working-capital needs with a short-term bank loan. The loan will carry a rate of 12 percent per annum with interest paid in advance (discounted). In addition, Paymaster must maintain a minimum demand deposit with the bank of 7 percent of the loan balance throughout the term of the loan. If Paymaste plans to borrow $100,000 for a period of 2 months, what is the annualized cost of the bank loan? ... The annualized cost of the bank loan is%. (Round to two decimal places.)
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
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Transcribed Image Text:(Related to Checkpoint 18.2) (Estimating the cost of bank credit) Paymaster Enterprises has arranged to finance its seasonal working-capital
needs with a short-term bank loan. The loan will carry a rate of 12 percent per annum with interest paid in advance (discounted). In addition,
Paymaster must maintain a minimum demand deposit with the bank of 7 percent of the loan balance throughout the term of the loan. If Paymaster
plans to borrow $100,000 for a period of 2 months, what is the annualized cost of the bank loan?
The annualized cost of the bank loan is%. (Round to two decimal places.)
Expert Solution
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Step 1
APR is a percentage that expresses the actual annual cost of borrowing money throughout the course of a loan or the revenue from an investment. This does not account for compounding and includes any fees or additional expenditures related to the transaction.
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