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 6 minutes ago

asked 14 minutes ago

asked 16 minutes ago

asked 25 minutes ago

asked 27 minutes ago

asked 29 minutes ago

asked 33 minutes ago

asked 34 minutes ago

asked 34 minutes ago

asked 35 minutes ago

asked 47 minutes ago

asked 48 minutes ago