Intermediate Financial Management (MindTap Course List)
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN: 9781337395083
Author: Eugene F. Brigham, Phillip R. Daves
Publisher: Cengage Learning
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Chapter 22, Problem 4P

Gifts Galore Inc. borrowed $1.5 million from National City Bank. The loan was made at a simple annual interest rate of 9% a year for 3 months. A 20% compensating balance requirement raised the effective interest rate.

  1. a. The nominal annual rate on the loan was 11.25%. What is the true effective rate?
  2. b. What would be the effective cost of the loan if the note required discount interest?
  3. c. What would be the nominal annual interest rate on the loan if the bank did not require a compensating balance but required repayment in three equal monthly installments?
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