Summit Record Company is negotiating with two banks for a $127,000 loan. Fidelity Bank requires a compensating balance of 22 percent, discounts the loan, and wants to be paid back in four quarterly payments. Southwest Bank requires a compensating balance of 11 percent, does not discount the loan, but wants to be paid back in 12 monthly installments. The stated rate for both banks is 7 percent. Compensating balances will be subtracted from the $127,000 in determining the available funds in part a a-1. Calculate the effective interest rate for Fidelity Bank and Southwest Bank. (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) Effective Rate of Interest Fidelity Bank Southwest Bank a-2. Which loan should Summit accept? O Southwest Bank O Fidelity Bank b. Recompute the effective cost of interest, assuming that Summit ordinarily maintains $27,940 at each bank in deposits that will serve as compensating balances. (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) Effective Rate of Interest Fidelity Bank Southwest Bank
Summit Record Company is negotiating with two banks for a $127,000 loan. Fidelity Bank requires a compensating balance of 22 percent, discounts the loan, and wants to be paid back in four quarterly payments. Southwest Bank requires a compensating balance of 11 percent, does not discount the loan, but wants to be paid back in 12 monthly installments. The stated rate for both banks is 7 percent. Compensating balances will be subtracted from the $127,000 in determining the available funds in part a a-1. Calculate the effective interest rate for Fidelity Bank and Southwest Bank. (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) Effective Rate of Interest Fidelity Bank Southwest Bank a-2. Which loan should Summit accept? O Southwest Bank O Fidelity Bank b. Recompute the effective cost of interest, assuming that Summit ordinarily maintains $27,940 at each bank in deposits that will serve as compensating balances. (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) Effective Rate of Interest Fidelity Bank Southwest Bank
Chapter16: Working Capital Policy And Short-term Financing
Section: Chapter Questions
Problem 30P
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VIEWa: Calculation of Effective Interest Rate of Fidelity Bank:
VIEWCalculation of Effective Interest Rate of Southwest Bank:
VIEWb.Calculation of Effective Interest Rate of Fidelity Bank if Compensating Balance deposited in Bank:
VIEWCalculation of Effective Interest Rate of Southwest Bank if Compensating Balance deposited in Bank:
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