Calculate effective rate of interest for types of loans

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Reference no: EM131978760

Your company plans to borrow $10 million for 12 months, and your banker gives you a stated rate of 14 percent interest. Calculate the effective rate of interest for the following types of loans.

a. Simple 14 percent interest with a compensating balance of 18 percent. (Use a 360-day year. Input your answer as a percent rounded to 2 decimal places.) EFFECTIVE RATEOF INTREST

b. Discounted interest (with no compensating balance). (Input your answer as percent rounded to EFFECTIVE RATEOF INTREST 2 decimal places.)

c. An installment loan (12 payments). (Input your answer as a percent rounded to 2 decimal places.) EFFECTIVE RATEOF INTREST

d. Discounted interest with a compensating balance of 9 percent. (Use a 360-day year. Input your answer as a percent rounded to 2 decimal places.) EFFECTIVE RATEOF INTREST

E). Harper Engine Company needs $638,000 to take a cash discount of 1.50/15, net 65. A banker will loan the money for 50 days at an interest cost of $16,800.

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.)

b. How much would it cost (in percentage terms) if Harper did not take the cash discount but paid the bill in 65 days instead of 15 days? (Use a 360-day year. Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.

c. Should Harper borrow the money to take the discount? No Yes

d. If another banker requires a 10 percent compensating balance, how much must Harper borrow to end up with $638,000? (Round your answer to 2 decimal places.)

e-1. What would be the effective interest rate in part d if the interest charge for 50 days were $14,400? (Use a 360-day year. Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

e-2. Should Harper borrow with the 10 percent compensating balance requirement? (There are no funds to count against the compensating balance requirement.) No Yes

Reference no: EM131978760

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