Question

Paymaster Enterprises has arranged to finance its seasonal working-capital needs with a short-term bank loan. The loan will carry a rate of 12 percent per annum with interest paid in advance (discounted). In addition, Paymaster must maintain a minimum demand deposit with the bank of 9 percent of the loan balance throughout the term of the loan. If Paymaster plans to borrow $110,000 for a period of 4 months, what is the effective cost of the bank loan? Hint: Assume the Paymaster does not have sufficient funds in the bank to satisfy the compensating balance requirement. The effective cost, or APR, of the bank loan is?

Answer #1

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(Estimating the cost of bank credit) Paymaster Enterprises has
arranged to finance its seasonal working-capital needs with a
short-term bank loan. The loan will carry a rate of 88 percent per
annum with interest paid in advance (discounted). In addition,
Paymaster must maintain a minimum demand deposit with the bank of
1010 percent of the loan balance throughout the term of the loan.
If Paymaster plans to borrow $1 comma 000 comma 0001,000,000 for a
period of 66 months, what...

1. Paymaster Enterprises has arranged to finance its seasonal
working-capital needs with a short-term bank loan. The loan will
carry a rate of 12 percent per annum with interest paid in
advance(discounted). In addition, Paymaster must maintain a minimum
demand deposit with the bank of 10 percent of the loan balance
throughout the term of the loan. If Paymaster plans to
borrow$100,000 for a period of 3 months, what is the annualized
cost of the bank loan?

?
Estimating the cost of bank? credit) Paymaster
Enterprises has arranged to finance its seasonal? working-capital
needs with a? short-term bank loan. The loan will carry a rate of
14 percent per annum with interest paid in advance? (discounted).
In? addition, Paymaster must maintain a minimum demand deposit with
the bank of 10 percent of the loan balance throughout the term of
the loan. If Paymaster plans to borrow $80,000 for a period of 4
?months, what is the annualized...

(Related to Checkpoint 18.2) (Estimating the cost of bank
credit) Paymaster Enterprises has arranged to finance its seasonal
working-capital needs with a short-term bank loan. The loan will
carry a rate of
1414
percent per annum with interest paid in advance (discounted).
In addition, Paymaster must maintain a minimum demand deposit with
the bank of
88
percent of the loan balance throughout the term of the loan. If
Paymaster plans to borrow
$120 comma 000120,000
for a period of
33...

(Cost of short-term bank loan) On July 1, 2018, the
Southwest Forging Corporation arranged for a line of credit with
the First National Bank (FNB) of Dallas. The terms of the
agreement call for a $110,000 maximum loan with interest set at 1
percent over prime. In addition, the firm has to maintain a 21
percent compensating balance in its demand deposit account
throughout the year. The prime rate is currently 13 percent. Note:
Interest is not paid in advance...

(Cost of short-term bank loan) On July 1, 2018, the Southwest
Forging Corporation arranged for a line of credit with the First
National Bank (FNB) of Dallas. The terms of the agreement call for
a $140 comma 000 maximum loan with interest set at 1 percent over
prime. In addition, the firm has to maintain a 19 percent
compensating balance in its demand deposit account throughout the
year. The prime rate is currently 14 percent. Note: Interest is
not paid...

(Cost of short-term bank loan) On July 1, 2018, the Southwest
Forging Corporation arranged for a line of credit with the First
National Bank (FNB) of Dallas. The terms of the agreement call for
a $100,000 maximum loan with interest set at 1 percent over prime.
In addition, the firm has to maintain a 17 percent compensating
balance in its demand deposit account throughout the year. The
prime rate is currently 13 percent. Note: Interest is not paid in
advance...

3. PAC Inc. has arranged for their company (Actors Guild Inc.)
to get a short-term bank loan for the Fall season. The interest
rate will be 12% per annum with the interest paid in advance. The
President of the bank requests that Actors Guild Inc. keep 10%
compensating balances for the full term of the loan. If Actors
Guild Inc. plans to borrow $500,000 for 6 months what is the
effective cost of this bank loan?

You plan to borrow $30,000 from the bank to pay for inventories
for a gift shop you have just opened. The bank offers to lend you
the money at 10 percent annual interest for the 6 months the funds
will be needed.
a. Calculate the effective rate of interest on the loan.
b. In addition, the bank requires you to maintain a
compensating balance of 15 percent in the bank. Because you are
just opening your business, you do not...

(Cost of short- term bank loan) On July1,2015 , the Southwest
Forging Corporation arranged for a line of
credit
with the First National Bank (FNB) of Dallas. The term of the
agreement call for a $100,000 maxinum loan
with
interest set at 1 percent over prime. In addition, the firm has to
maintain a 20 percent compensation sating
balance
in its demand deposit account throught the year. The prime rate is
currently 4.5 percent.
a . If
Southwest normally maintains...

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