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 alsorequires 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 bankuses compound interest on its trevolving credit loans. (Do not round intermediate calculetions. Round the final answers to 2 decimalplaces.)a. What is your effective annual interest rate (an opportunity cost) on the revolving credit arrangement if your firm does not use Itduring the year?Effective annual Interest rateb. What is your effective annual interest rate on the lending arrangement if you borrow $35 million immediately and repay it in oneyear?Effective annual interest rate1%c. What is your effective annual interest rate if you borrow $68 milion Immediately and repoy it in one year?Effective annual interest rate

Interest rate is the percentage rate being charged upon the par value of the money issued or funded.…

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 c. What is your effective annual interest rate if you borrow $68 million Immediately and repay it in one year? Effective annual interest rate

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 c. What is your effective annual interest rate if you borrow $68 million Immediately and repay it in one year? Effective annual interest rate

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?
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
Marathon Peanuts converts a $130,000 account payable into a short-term note payable, with an annual interest rate of 6%, and payable in four months. How much interest will Marathon Peanuts owe at the end of four months? A. $2,600 B. $7,800 C. $137,800 D. $132,600
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…
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