Computing the cost of a simple interest loanMontross Inc. needs to raise $300,000 for a nine-month term. Montross’s bank has offered to lend Montross the money at a 12.00% simple interest rate. Montross will receive the $300,000 upon approval of the loan and will pay back the principal and interest at maturity.Calculate the interest payment, the amount of cash received, the annual percentage rate (APR), and the effective annual rate (EAR) of this loan. ValueInterest payment______________ Amount of cash received______________ Annual percentage rate (APR)______________ Effective annual rate (EAR)______________ Suppose the terms of the loan require that Montross maintain a compensating balance equal to 20% of the loan balance, and Montross will have to borrow the compensating balance from the bank.Calculate the interest payment, the amount of cash received, the annual percentage rate (APR), and the effective annual rate (EAR) of the loan considering the compensating balance requirement. ValueInterest payment______________ Amount of cash borrowed______________ Annual percentage rate (APR)______________ Effective annual rate (EAR)______________

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Answered: Montross Inc. needs to raise $300,000…

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 3P: Del Hawley, owner of Hawleys Hardware, is negotiating with First City Bank for a 1-year loan of...

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Computing the cost of a simple interest loan

Montross Inc. needs to raise $300,000 for a nine-month term. Montross’s bank has offered to lend Montross the money at a 12.00% simple interest rate. Montross will receive the $300,000 upon approval of the loan and will pay back the principal and interest at maturity.

Calculate the interest payment, the amount of cash received, the annual percentage rate (APR), and the effective annual rate (EAR) of this loan.

	Value
Interest payment	______________
Amount of cash received	______________
Annual percentage rate (APR)	______________
Effective annual rate (EAR)	______________

Suppose the terms of the loan require that Montross maintain a compensating balance equal to 20% of the loan balance, and Montross will have to borrow the compensating balance from the bank.

Calculate the interest payment, the amount of cash received, the annual percentage rate (APR), and the effective annual rate (EAR) of the loan considering the compensating balance requirement.

	Value
Interest payment	______________
Amount of cash borrowed	______________
Annual percentage rate (APR)	______________
Effective annual rate (EAR)	______________

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