Question

Huskie Toys has been offered a $12 million loan with a 7.5% rate. The loan is to be repaid with a single payment in three years. The loan requires a compensating balance of 20%, which will be held in an account paying 2% interest. The compensating balance and the interest it generates must be maintained in the account for the 3-year life of the loan. What annual rate does the loan charge?

Answer #2

Loan | 12000000 |

Less : Compensating Balance | 2400000 |

Net Inflow |
9600000 |

Interest paid at end of year 1,2,3 | 900000 |

Interest Received at end of year 1,2,3 | 48000 |

Net Interest Paid for the
period |
852000 |

The actual rate of Interest is the rate which will equate the
net cash outflows at the end of the various periods to the net
amount borrowed.

i.e the r which satisfies the below equation is the rate of
interest :

$9600000 = 852000/(1+r) + 852000/(1+r)^2 + 852000/(1+r)^3 +
9600000/(1+r)^3

**Solving the above equation, we get r=
8.875%.**

**Ans : The annual rate of interest that the loan is actually
charging is 8.875%**

answered by: anonymous

A bank offers a loan to be repaid with a single payment after 10
years. The bank requires an annual interest rate of 3.5% compounded
continuously assuming no default. It is given that the percentage
of borrowers that will default is 15%, and it is expected that the
bank will be able to recover 38%. Find the annual interest rate
compounded continuously that the bank should charge taking into
account defaults and recoveries.

Your brother has just taken out a loan for $75,000. The stated
(simple) interest rate on this loan is 10 percent, and the bank
requires him to maintain a compensating balance equal to 15 percent
of the initial face amount of the loan. He currently has $20,000 in
his checking account, and he plans to maintain this balance. The
loan is an add-on installment loan which he will repay in 12 equal
monthly installments, beginning at the end of the...

You borrowed $20,000 from a bank at an
interest rate of 12%, compounded monthly.
This loan will be repaid in 60 equal monthly
installments over 5 years. Immediately after
your 30th payment if you want to pay the
remainder of the loan in a single payment, the
amount is close to:

Crab State Bank has offered you a $1,250,000 5-year loan at an
interest rate of 10.25 percent, requiring equal annual end-of-year
payments that include both principal and interest on the unpaid
balance. Develop an amortization schedule for this loan. Round your
answers to the nearest dollar.
End of Year Payment Interest (10.25%) Principal Reduction
Balance Remaining
0 $1,250,000
1 $ $ $
2
3
4
5

Crab State Bank has offered you a $1,250,000 5-year loan at an
interest rate of 10.25 percent, requiring equal annual end-of-year
payments that include both principal and interest on the unpaid
balance. Develop an amortization schedule for this loan. Round your
answers to the nearest dollar. End of Year Payment Interest
(10.25%) Principal Reduction Balance Remaining 0 $1,250,000 1 $ $ $
2 3 4 5
can you explain the steps please.

A firm has the following choices to
finance its inventory purchase:
•Credit terms of 3/25 net 45 EOM
•A single payment note with $300,000 principal and a 5.75%
annual interest rate payable in 45 days
•A $300,000 loan with a 10% compensating balance requirement and
4.85% annual interest rate payable in 45 days (no money is on
deposit with the lender)
•Selling $300,000 in commercial paper, that will be repaid in 45
days, for $297,500
1.Calculate the cost of not...

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

You want to borrow $22,425. You must repay the loan in 12 years
in equal monthly payments and a single $2,894 payment at the end of
12 years. Interest rate is 14% nominal per year.What will be the
loan balance immediately after the 50th payment?

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...

You receive a 4-year $11,000 negative amortization loan with an
interest rate of 5% p.a., to be repaid in four annual installments.
The loan requires that you make total payments of $300 at t = 1,
$400 at t = 2, and $300 at t = 3, with the remaining loan balance
paid at maturity. What is the total payment amount at t = 4,
rounded to the nearest dollar?

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 22 minutes ago

asked 49 minutes ago

asked 1 hour ago

asked 1 hour 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