Question

Rockville Corporation is going to borrow $250,000 from its bank
at an APR of 8.5 percent. The bank requires its customers to
maintain a 10 percent compensating balance. **What is the
effective interest rate on this bank loan?** *Round to 4
decimal places and enter percentages as a decimal.*

Answer #1

**SOLUTION:-**

**Calculate of effective interest rate if Rockville
corporation as follows:-**

**Here,**

Amount borrowed = 250,000

Interest = 8.5%

Compensate balance = 10% on loan

Amount deposited as compensate balance = 250,000*10% = 25,000

Effective borrowing = 250,000 - 25,000 = 225,000

Interest expense = amount borrowed * interest rate

= 250,000*8.5

Interest expense = 21,250.

Effective interest rate = interest expense / effective borrowing amount

= 21,250/225,000

= 0.09444444

Effective interest rate = 9.4444%

**THANK YOU, if any queries please leave your valuable
comment on comment box.....**

**If possible then rate the answer as
well.....**

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...

The Clarkson Designer Company wants to borrow $750,000. The bank
will provide the loan at an APR of 8.115. Since the loan calls for
a compensating balance, the effective interest rate is actually
9.565 percent. What is the compensating balance on this loan?
(Round answer to 1 decimal place, e.g.
12.2%.)
The compensating balance on
the loan is %.

Unlimited Tours has borrowed $50000 at a stated APR of 8.5
percent. The loan calls for a compensating balance of 8 percent.
What is the effective interest rate for this company?

Morgan Contractors borrowed $1.80 million at an APR of 6.0
percent. The loan called for a compensating balance of 6 percent.
What is the effective interest rate on the loan? (Round
intermediate calculations to 4 decimal places, e.g. 1.2541 and
final answer to 2 decimal places, e.g.
12.25%.)
The effective interest rate
on the loan is %.

Cheap Money Bank offers your firm a discount interest
loan at 5 percent for up to $18 million and, in addition, requires
you to maintain a 2 percent compensating balance against the amount
borrowed.
What is the effective annual interest rate on this lending
arrangement? (Do not round intermediate calculations and
enter your answer as a percent rounded to 2 decimal places, e.g.,
32.16.)

The Pulaski Company has a line of credit with a bank under which
it can borrow funds at a 5 percent interest rate. The company plans
to borrow $82,000 and is required by the bank to maintain a 20
percent compensating balance. Assume that there are 365 days per
year. Determine the annual financing cost of the loan for a year
under each of the following conditions:
Round your answer to two decimal places.
The company currently maintains $7,000 in...

Kalamazoo Company has a $5 million revolver with its bank to
borrow at an annual interest rate of 4 percentage point above the
prime rate (currently 7 percent). The agreement requires the
company to maintain a 10% average compensating balance on any funds
borrowed under the agreements, as well as to pay a 0.75 percent
commitment fee on the unused portion of the credit line. The
company’s average borrowing under the agreement during the year is
expected to be $3...

Come and Go Bank offers your firm a discount interest
loan with an interest rate of 8 percent for up to $17 million, and
in addition requires you to maintain a 4 percent compensating
balance against the face amount borrowed.
What is the effective annual interest rate on this lending
arrangement? (Do not round intermediate calculations and
enter your answer as a percent rounded to 2 decimal places, e.g.,
32.16.)
Effective annual rate

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...

You plan to borrow $10 comma 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 13 percent annual interest for the 3
months the funds will be needed (assume a 360-day year).
a. Calculate the annualized rate of interest on the loan. b. In
addition, the bank requires you to maintain a 20 percent
compensating balance in the bank. Because you are just opening...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 16 minutes ago

asked 26 minutes ago

asked 45 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago