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XXX, Inc. finances tis seasonal working capital need with short-term bank loans. Management plans to borrow $65,000 for a year. The bank has offered the company a 3.5 percent discounted loan with a 1.5 percent origination fee.What are the interest payment and the origination fee requiered by the loan?What is the rate of interest charged by the bank?

Question

XXX, Inc. finances tis seasonal working capital need with short-term bank loans. Management plans to borrow $65,000 for a year. The bank has offered the company a 3.5 percent discounted loan with a 1.5 percent origination fee.

What are the interest payment and the origination fee requiered by the loan?

What is the rate of interest charged by the bank?

check_circleAnswer
Step 1

Calculating the interest payment on the working capital loan. We have,

Loan Amount = $ 65,000

Interest rate = 3.5%

Interest amount = Loan Amount X Interest rate

Interest amount = $ 65,000 X 3.5%

Interest amount = $2,275

Step 2

Calculating the origination fee required by the loan. We have,

Loan Amount = $ 65,000

Origination fee rate =1.5%

Origination fee = Loan Amount X Origination fee rate

Origination fee = $ 65,000 x 1.5%

Origination fee = $ 975

...

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