Suppose a company borrowed $1 million at a rate of 9% simple interest, with interestpaid at the end of each month. The bank uses a 360-day year. How much interestwould the firm have to pay in a 30-day month? What would the interest be if thebank used a 365-day year? [(0.09/360) (30) ($1,000,000) 5 $7,500 interest for themonth. For the 365-day year, (0.09/365)(30)($1,000,000) 5 $7,397.26 of interest.The use of a 360-day year raises the interest cost by $102.74, which is whybanks like to use it on loans.]
Suppose a company borrowed $1 million at a rate of 9% simple interest, with interestpaid at the end of each month. The bank uses a 360-day year. How much interestwould the firm have to pay in a 30-day month? What would the interest be if thebank used a 365-day year? [(0.09/360) (30) ($1,000,000) 5 $7,500 interest for themonth. For the 365-day year, (0.09/365)(30)($1,000,000) 5 $7,397.26 of interest.The use of a 360-day year raises the interest cost by $102.74, which is whybanks like to use it on loans.]
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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Question
Suppose a company borrowed $1 million at a rate of 9% simple interest, with interest
paid at the end of each month. The bank uses a 360-day year. How much interest
would the firm have to pay in a 30-day month? What would the interest be if the
bank used a 365-day year? [(0.09/360) (30) ($1,000,000) 5 $7,500 interest for the
month. For the 365-day year, (0.09/365)(30)($1,000,000) 5 $7,397.26 of interest.
The use of a 360-day year raises the interest cost by $102.74, which is why
banks like to use it on loans.]
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