None You've worked out a line of credit arrangement that allows you to borrow up to $42 million at any time. The interest rate is 43 percentper month. In addition, 5 percent of the amount that you borrow must be deposited in a non-interest-bearing account. Assume thatyour bank uses compound interest on its line of credit loans.a. What is the effective annual interest rate on this lending arrangement?Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.b. Suppose you need $30 million today and you repay it in 6 months. How much interest will you pay?Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.a. Annual interest rateb. Interest paid5.57 %

Step 1: Computation of Effective Annual Interest Rate: As per the given data: Monthly interest rate…

Answered: You've worked out a line of credit…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 14P

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You've worked out a line of credit arrangement that allows you to borrow up to $70 million at any time. The interest rate is .391 percent per month. In addition, 5 percent of the amount that you borrow must be deposited in a noninterest - bearing account. Assume that your bank uses compound interest on its line of credit loans. What is the effective annual interest rate on this lending arrangement? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e. g., 32.1 Suppose you need $15 million today and you repay it in eight months. How much interest will you pay? Note: Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to 2 decimal places, e.g., 1, 234, 567.89.
You've worked out a line of credit arrangement that allows you to borrow up to $70 million at any time. The interest rate is .375 percent per month. In addition, 4 percent of the amount that you borrow must be deposited in a noninterest-bearing account. Assume that your bank uses compound interest on its line-of-credit loans. a. What is the effective annual interest rate on this lending arrangement? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.1 b. Suppose you need $25 million today and you repay it in eight months. How much interest will you pay? Note: Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to 2 decimal places, e.g., 1,234,567.89. a. Effective annual rate b. Total interest paid %
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Suppose that you owe $2500 on a credit card that charges 18% APR and you pay either the minimum, 10% or $20 whichever is higher, every month. How long will it take you to eliminate the debt?. Assume that the bank uses the previous balance method to calculate your interest, meaning that the bank does not subtract the amount of your payment from the beginning balance but charges you interest on the previous balance.
Cheap Money Bank offers your firm a discount interest loan with an interest rate of 9.85 percent for up to $25 million, and in addition requires you to maintain a 4.5 percent compensating balance against the face amount borrowed. What is the effective annual interest rate on this lending arrangement? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. Effective annual rate %
A bank offers your firm a revolving credit arrangement for up to $86 million at an interest rate of 2.15 percent per quarter. The bank also requires you to maintain a compensating balance of 2 percent against the unused portion of the credit line, to be deposited in a non-interest-bearing account. Assume you have a short-term investment account at the bank that pays 1.50 percent per quarter, and assume that the bank uses compound interest on its revolving credit loans. a. What is your effective annual interest rate (an opportunity cost) on the revolving credit arrangement if your firm does not use it during the year? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Effective annual interest rate % b. What is your effective annual interest rate on the lending arrangement if you borrow $50 million immediately and repay it in one year? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2…
You borrow $1,000 from the bank and agree to repay the loan over the next year in 12 equal monthly payments of $90. However, the bank also charges you a loan initiation fee of $18, which is taken out of the initial proceeds of the loan. What is the effective annual interest rate on the loan, taking account of the impact of the initiation fee? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Use a financial calculator or Excel. Effective annual interest rate 1.49 %
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A payday lender lends money on the following terms: “If I give you $100 today, you will write me a check for $120, which you will redeem or I will cash on your next payday.” Noting that calculated rates would be even higher for closer paydays, assume that the payday is two weeks away. (a) What nominal interest rate per year (r) is the lender charging? (b) What effective interest rate per year (ia) is the lender charging? (c) If the lender started with $100 and was able to keep it, as well as all the money received, loaned out at all times, how much money does the lender have at the end of one year?
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A bank offers your firm a revolving credit arrangement for up to $68 million at an interest rate of 1.70% per quarter. The bank also requires you to maintain a compensating balance of 4% against the unused portion of the credit line, to be deposited in a non interest- bearing account. Assume you have a short-term investment account at the bank that pays 1.05% per quarter, and assume that the bank uses compound interest on its trevolving credit loans. (Do not round intermediate calculetions. Round the final answers to 2 decimal places.) a. What is your effective annual interest rate (an opportunity cost) on the revolving credit arrangement if your firm does not use It during the year? Effective annual Interest rate b. What is your effective annual interest rate on the lending arrangement if you borrow $35 million immediately and repay it in one year? Effective annual interest rate 1% c. What is your effective annual interest rate if you borrow $68 milion Immediately and repoy it in one…

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