Summit Record Company is negotiating with two banks for a $122,000 loan. Fidelity Bank requires a compensating balance of 20 percent, discounts the loan, and wants to be paid back four quarterly payments. Southwest Bank requires a compensating balance of 10 percent, does not discount the loan, but wants to be paid back in 12 monthly installments. The stated ra for both banks is 9 percent. Compensating balances will be subtracted from the $122,000 in determining the available funds in part a. a-1. Calculate the effective interest rate for Fidelity Bank and Southwest Bank. (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) Fidelity Bank Southwest Bank a-2. Which loan should Summit accept? Southwest Bank O Fidelity Bank Effective Rate of Interest b. Recompute the effective cost of interest, assuming that Summit ordinarily maintains $24,400 at each bank in deposits that will serve as compensating balances. (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) Fidelity Bank Southwest Bank Effective Rate of Interest %

Summit Record Company is negotiating with two banks for a $122,000 loan. Fidelity Bank requires a compensating balance of 20 percent, discounts the loan, and wants to be paid back four quarterly payments. Southwest Bank requires a compensating balance of 10 percent, does not discount the loan, but wants to be paid back in 12 monthly installments. The stated ra for both banks is 9 percent. Compensating balances will be subtracted from the $122,000 in determining the available funds in part a. a-1. Calculate the effective interest rate for Fidelity Bank and Southwest Bank. (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) Fidelity Bank Southwest Bank a-2. Which loan should Summit accept? Southwest Bank O Fidelity Bank Effective Rate of Interest b. Recompute the effective cost of interest, assuming that Summit ordinarily maintains $24,400 at each bank in deposits that will serve as compensating balances. (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) Fidelity Bank Southwest Bank Effective Rate of Interest %

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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Company is considering to establish a line of credit with a local bank to make up for the cash deficit for the next three months. The company expects a 60% chance for a $240,938 deficit and a 40% chance for no deficit at all. The line of credit charges 0.59% of interest rate per month on the amount borrowed plus a commitment fee of $2,500 for a quarter. It also requires a 7% compensation balance for outstanding loans. The company can reinvest any excess cash at an annual rate of 8%. What will the expected cost of establishing a line of credit be? Round your answer to the nearest dollar. (Hint: Refer to a numerical example in short-term financing choices.) Group of answer choices: $5,255 $5,240 $5,251 $5,260 $5,246
Weathers Catering Supply, Inc., needs to borrow $145,000 for 6months. State Bank has offered to lend the funds at an annual rate of 8.6% subject to a 10.4% compensating balance. (Note: Weathers currently maintains $0 on deposit in State Bank.) Frost Finance Co. has offered to lend the funds at an annual rate of 8.6% with discount-loan terms. The principal of both loans would be payable at maturity as a single sum. a. State Bank's semi-annual rate is ? (Round to two decimal places.) State Bank's effective annual rate is ? (Round to two decimal places.) Frost Finance's semi-annual rate is ? (Round to two decimal places.) Frost Finance's effective annual rate is ? (Round to two decimal places.)
Ranger Enterprises is considering pledging its receivables to finance a needed increase in working capital. Its commercial bank will lend 70 percent of the pledged receivables at 2.5 percentage points above the prime rate, which is currently 10 percent. In addition, the bank charges a service fee equal to 2 percent of the pledged receivables. Both interest and the service fee are payable at the end of the borrowing period. Ranger’s average collection period is 55 days, and it has receivables totaling $7 million that the bank has indicated are acceptable as collateral. Calculate the annual financing cost for the pledged receivables. Assume that there are 365 days per year. Round your answer to two decimal places. %
A loan of $1420 taken out on June 7 requires three payments. The first payment is due on July 7. The second payment is twice as large as the first payment and is due on August 19. The final payment, due on November 2, is three times as large as the first payment. If the focal date is June 7, what is the size of each of the three payments at an interest rate of 4.9%? The first payment is $ the second payment is $, and the third payment is $ (Round the final answers to the nearest cent as needed. Round all intermediate values to sx decimal places as needed)
ABC Company is considering to establish a line of credit with a local bank to make up for the cash deficit for the next three months. The company expects a 60% chance for a $273,446 deficit and a 40% chance for no deficit at all. The line of credit charges 0.52% of interest rate per month on the amount borrowed plus a commitment fee of $2,500 for a quarter. It also requires a 9% compensation balance for outstanding loans. The company can reinvest any excess cash at an annual rate of 8%. What will the expected cost of establishing a line of credit be? Round your answer to the nearest dollar. (Hint: Refer to a numerical example in short-term financing choices.) Group of answer choices $5,313 $5,321 $5,304 $5,309 $5,317
Bank K is about to sign a loan agreement with a mining company.The current LIBOR rate is 8%.The risk premium for the company has been estimated as 3% and the origination fee will be 0.1875 percent.The bank will be requesting a 9% compensating balance requirement.If the reserve requirement is 6%,what is the promised gross return on the loan?
Jérôme Kerviel Bank charges an APR of 11.80 per cent, compounded monthly, on its business loans. Société Générale charges a six per cent semiannual rate on similar loans. Which option is best from the borrower's point of view? A) Jérôme Kerviel Bank's loan is the best option because its EAR is 12.46 per cent. B) Société Générale's loan is the best option because its EAR is 12.36 per cent. C) Jérôme Kerviel Bank's loan is the best option because its monthly rate is 0.98 per cent, which is smaller than Société Générale's monthly rate at one per cent. D) Société Générale's loan is the best option because its EAR is 6.09 percent. E) Both options are identical from a borrower's perspective.
(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 14 percent per annum with interest paid in advance (discounted). In addition, Paymaster must maintain a minimum demand deposit with the bank of 10 percent of the loan balance throughout the term of the loan. If Paymaster plans to borrow $90,000 for a period of 6 months, what is the annualized cost of the bank loan? The annualized cost of the bank loan is %. (Round to two decimal places.)
Company A is currently cash-constrained, and must make a decision about whether to delay paying one of its suppliers, or taking out a loan. They owe the supplier $23345, and they can borrow the money from Bank A, which has offered to lend the firm $23345 for 2 month(s) at an APR (compounded) of 15%. The bank will require a (no-interest) compensating balance of 7% of the face value of the loan and will charge a $216 loan origination fee, which means Hand-to-Mouth must borrow even more than the $23345. Compute the EAR of the loan. Give typing answer with explanation and conclusion
TBTF Bank makes a 3 year interest only loan to AFC Inc of $2,350,000.00. The interest rate on the loan is ¡ (52) = 12.500%, and the payments will be made quarterly. TBTF reinvests the payments at an interest rate of ¡(26) = 14.250%. At maturity, what is TBTF Bank's annual ROI over the lifetime of the loan? (AFC does not default.) a. 11.289% b. 12.241% C. 13.601% d. 14.009% e. 12.377%
Cray Computing needs a 6-month loan for $300,000. Its bank quotes a simple interest rate of 11% on the loan. a.) What is the annual percentage rate (APR) if there is a compensating balance requirement of 30% of the loan amount? b.) What is the effective annual rate (EAR) if there is a compensating balance requirement of 30% of the loan amount?

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