You've worked out a line of credit arrangement that allows you to borrow up to $70million at any time. The interest rate is .375 percent per month. In addition, 4 percent ofthe 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 apercent rounded to 2 decimal places, e.g., 32.1b. Suppose you need $25 million today and you repay it in eight months. How muchinterest 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 rateb. Total interest paid%

a)Monthly Interest = amount borrowed * Interest rate = 70,000,000 * 0.375%…

Answered: a. What is the effective annual…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 17P

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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
Calculating interest and APR of installment loan. Assuming that interest is the only finance charge, how much interest would be paid on a 5,000 installment loan to be repaid in 36 monthly installments of 166.10? What is the APR on this loan?
Calculating and comparing add-on and simple interest loans. Eli Nelson is borrowing 10,000 for five years at 7 percent. Payments, which are made on a monthly basis, are determined using the add-on method. a. How much total interest will Eli pay on the loan if it is held for the full five-year term? b. What are Elis monthly payments? c. How much higher are the monthly payments under the add-on method than under the simple interest method?
If Bergen Air Systems takes out a $100,000 loan, with eight equal principal payments due over the next eight years, how much will be accounted for as a current portion of a noncurrent note payable each year?
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?
A customer takes out a loan of $130,000 on January 1, with a maturity date of 36 months, and an annual interest rate of 11%. If 6 months have passed since note establishment, what would be the recorded interest figure at that time? A. $7,150 B. $65,000 C. $14,300 D. $2,383

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