Show the solution in good accounting form 13. Kenneth's Arrows and Bows borrow P10,000 for one year at 12% interest. What is the effective rate of interest ifthe loan is discounted?A. < 12.5%C. > 13.5% but < 14.5%B. > 12.5% but < 13.5%D. > 14.5%14. Koopman's Chickens, Inc. plans to borrow P300,000 from its bank for one year. The rate of interest is 10%, but acompensating balance of 15% is required. What is the effective rate of interest?A. <11.4%B. > 11.4% but < 11.6%C. > 11.6 % but < 11.8 %D. > 11.8 %

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Description: Show the solution in good accounting form 13. Kenneth's Arrows and Bows borrow P10,000 for one year at 12% interest. What is the effective rate of interest ifthe loan is discounted?A. 13.5% but 12.5% but 14.5%14. K

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13. Kenneth's Arrows and Bows borrow P10,000 for one year at 12% interest. What is the effective rate of interest if the loan is discounted? A. < 12.5% B. > 12.5% but < 13.5% C. > 13.5% but < 14.5% D. > 14.5% 14. Koopman's Chickens, Inc. plans to borrow P300,000 from its bank for one year. The rate of interest is 10%, but a compensating balance of 15% is required. What is the effective rate of interest? A. <11.4% C. > 11.6 % but < 11.8 % B. > 11.4% but < 11.6% D. > 11.8 %

13. Kenneth's Arrows and Bows borrow P10,000 for one year at 12% interest. What is the effective rate of interest if the loan is discounted? A. < 12.5% B. > 12.5% but < 13.5% C. > 13.5% but < 14.5% D. > 14.5% 14. Koopman's Chickens, Inc. plans to borrow P300,000 from its bank for one year. The rate of interest is 10%, but a compensating balance of 15% is required. What is the effective rate of interest? A. <11.4% C. > 11.6 % but < 11.8 % B. > 11.4% but < 11.6% D. > 11.8 %

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter22: Providing And Obtaining Credit

Section: Chapter Questions

Problem 4P: Gifts Galore Inc. borrowed 1.5 million from National City Bank. The loan was made at a simple annual...

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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. a. The nominal annual rate on the loan was 11.25%. What is the true effective rate? b. What would be the effective cost of the loan if the note required discount interest? 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?
EFFECTIVE VERSUS NOMINAL INTEREST RATES Bank A pays 4% interest compounded annually on deposits, while Bank B pays 35% compounded daily. a. Based on the EAR (or EFF%), which hank should you use? b. Could your choice of banks be influenced by the fact that you might want to withdraw your funds during the year as opposed to at the end of the year? Assume that your funds must be left on deposit during an entire compounding period in order to receive any interest.
Del Hawley, owner of Hawleys Hardware, is negotiating with First City Bank for a 1-year loan of 50,000. First City has offered Hawley the alternatives listed here. Calculate the effective annual interest rate for each alternative. Which alternative has the lowest effective annual interest rate? a. A 12% annual rate on a simple interest loan, with no compensating balance required and interest due at the end of the year b. A 9% annual rate on a simple interest loan, with a 20% compensating balance required and interest due at the end of the year c. An 8.75% annual rate on a discounted loan, with a 15% compensating balance d. Interest figured as 8% of the 50,000 amount, payable at the end of the year, but with the loan amount repayable in monthly installments during the year
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