Question

Cheap Money Bank offers your firm a |

What is the effective annual interest rate on this lending
arrangement? |

Answer #1

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

A bank offers your firm a revolving credit arrangement for up to
$50 million at an interest rate of 1.25 percent per quarter. The
bank also requires you to maintain a compensating balance of 3
percent against the unused portion of the credit line, to
be deposited in a noninterest-bearing account. Assume you have a
short-term investment account at the bank that pays .60 percent per
quarter, and assume that the bank uses compound interest on its
revolving credit loans....

In exchange for a $400 million fixed commitment line of credit,
your firm has agreed to do the following:
Pay 1.7 percent per quarter on any funds actually
borrowed.
Maintain a 2 percent compensating balance on any funds actually
borrowed.
Pay an up-front commitment fee of 0.21 percent of the amount of
the line.
Based on this information, answer the following:
a. Ignoring the commitment fee, what is the
effective annual interest rate on this line of credit? (Do
not...

In exchange for a $400 million fixed commitment line of credit,
your firm has agreed to do the following:
Pay 1.97 percent per quarter on any funds actually
borrowed.
Maintain a 1 percent compensating balance on any funds actually
borrowed.
Pay an up-front commitment fee of 0.23 percent of the amount of
the line.
Based on this information, answer the following:
a. Ignoring the commitment fee, what is the
effective annual interest rate on this line of credit? (Do
not...

In exchange for a $400 million fixed commitment line of credit,
your firm has agreed to do the following: Pay 1.84 percent per
quarter on any funds actually borrowed. Maintain a 2 percent
compensating balance on any funds actually borrowed. Pay an
up-front commitment fee of 0.29 percent of the amount of the line.
Based on this information, answer the following:
a. Ignoring the commitment fee, what is the
effective annual interest rate on this line of credit? (Do not...

In exchange for a $400 million fixed commitment line of credit,
your firm has agreed to do the following:
Pay 1.88 percent per quarter on any funds actually
borrowed.
Maintain a 3 percent compensating balance on any funds actually
borrowed.
Pay an up-front commitment fee of 0.22 percent of the amount of
the line.
Based on this information, answer the following:
a. Ignoring the commitment fee, what is the
effective annual interest rate on this line of credit? (Do
not...

A firm offers terms of 1/10, net 35.
a. What effective annual interest rate does the firm earn when a
customer does not take the discount? (Do not round intermediate
calculations and enter your answer as a percent rounded to 2
decimal places, e.g., 32.16.)
b. What effective annual interest rate does the firm earn if the
discount is changed to 2 percent? (Do not round intermediate
calculations and enter your answer as a percent rounded to 2
decimal places,...

Neveready Flashlights Inc. needs $340,000 to take a cash
discount of 3/17, net 72. A banker will loan the money for 55 days
at an interest cost of $10,400.
a. What is the effective rate on the bank loan? (Use a 360-day
year. Do not round intermediate calculations. Input your answer as
a percent rounded to 2 decimal places.)
Effective rate of interest:
b. How much would it cost (in percentage terms) if the firm did
not take the cash...

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...

You’ve worked out a line of credit arrangement that allows you
to borrow up to $40 million at any time. The interest rate is .36
percent per month. In addition, 4 percent of the amount that you
borrow must be deposited in a non-interest-bearing account. Assume
that your bank uses compound interest on its line of credit
loans.
a. What is the effective annual interest rate on this lending
arrangement? (Do not round intermediate calculations and enter your
answer as...

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