You are the accounting manager for Kool Ragz, Inc., a manufacturer of men's and women's clothing. The company needs to borrow $1,900,000 for 90 days in order to purchase a large quantity of material at "closeout" prices. The interest rate for such loans at your bank, Rimrock Bank, is 15% using ordinary interest. a) What is the amount (in $) of interest on this loan? b) After making a few "shopping" calls, you find that Southside National Bank will lend at 15% using exact interest. What is the amount (in $) of interest on this offer? (Round your answer to two decimal places.) c) So that it can keep your business, Rimrock Bank has offered a loan at 14.5% using ordinary interest. What is the amount (in $) of interest on this offer? d) (Challenge) If Southside National wants to compete with Rimrock's last offer (part c) by charging $1,875 less interest, what rate (as a %), rounded to the nearest hundredths of a percent, must it quote using exact interest?
You are the accounting manager for Kool Ragz, Inc., a manufacturer of men's and women's clothing. The company needs to borrow $1,900,000 for 90 days in order to purchase a large quantity of material at "closeout" prices. The interest rate for such loans at your bank, Rimrock Bank, is 15% using ordinary interest.
a) What is the amount (in $) of interest on this loan?
b) After making a few "shopping" calls, you find that Southside National Bank will lend at 15% using exact interest. What is the amount (in $) of interest on this offer? (Round your answer to two decimal places.)
c) So that it can keep your business, Rimrock Bank has offered a loan at 14.5% using ordinary interest. What is the amount (in $) of interest on this offer?
d) (Challenge) If Southside National wants to compete with Rimrock's last offer (part c) by charging $1,875 less interest, what rate (as a %), rounded to the nearest hundredths of a percent, must it quote using exact interest?
Sol:-
a) The interest on the loan using ordinary interest is:
Interest = Principal x Rate x Time Interest = $1,900,000 x 0.15 x (90/365) Interest = $69,041.10
Therefore, the amount of interest on this loan is $69,041.10.
b) The interest on the loan using exact interest is:
Interest = Principal x Rate x Time Interest = $1,900,000 x 0.15 x (90/360) Interest = $71,250.00
Therefore, the amount of interest on this offer is $71,250.00.
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