The financial managers at Montross Corporation are arranging the financing for working capital requirements for the upcoming year. Montross’s local bank offers a discount interest loan at a quoted (simple) interest rate of 4.00%. With a discount interest loan, interest is payable up front, and the actual amount received is less than the face amount of the loan. Suppose Montross applies for a $200,000 loan with a nine-month term. Calculate the interest payment, the amount of cash received, the annual percentage rate (APR), and the effective annual rate (EAR) of this loan. (Fill In)   Value Interest payment ________________     Amount of cash received ________________     Annual percentage rate (APR) ________________     Effective annual rate (EAR) ________________      What is the nine-month rate if the bank charges a $100 processing fee? Pick one choice.   3.15%   4.12%   3.05%   2.84%

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Computing the cost of a discount interest loan

The financial managers at Montross Corporation are arranging the financing for working capital requirements for the upcoming year. Montross’s local bank offers a discount interest loan at a quoted (simple) interest rate of 4.00%. With a discount interest loan, interest is payable up front, and the actual amount received is less than the face amount of the loan. Suppose Montross applies for a $200,000 loan with a nine-month term.
Calculate the interest payment, the amount of cash received, the annual percentage rate (APR), and the effective annual rate (EAR) of this loan. (Fill In)
 
Value
Interest payment ________________    
Amount of cash received ________________    
Annual percentage rate (APR) ________________    
Effective annual rate (EAR) ________________   
 
What is the nine-month rate if the bank charges a $100 processing fee? Pick one choice.
 
3.15%
 
4.12%
 
3.05%
 
2.84%
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