$250,000 for one year at 13.5 percent from Second Intrastate Bank. The bank requ
ID: 2656084 • Letter: #
Question
$250,000 for one year at 13.5 percent from Second Intrastate Bank. The bank requires a 20 percent compensating balance. The principal Carey Company is borrowing firm can effectively utilize (Amount borrowed - Compensating balance) a. What is the effective rate of interest? (Use a 360-day year, I Input your answer as a percent rounded to 2 decimal places.) Effective rate of interest 16881 Carey were required to make 12 equal monthly payments to retire the loan? (Use a 360-day year. Input your answer asa percent rounded to 2 decimal places.) Effective rate of interestExplanation / Answer
Notional Loan Amount = $250000; Compensating Balance = 20% or $ 50000; Net Loan Available = $200000
Interest Cost for 12 months = 250000 * 13.5% * 360 / 360 = $ 33750
Effective Rate = (33750/200000) = 16.88%
In case of Installment Loan, the formula for the Effective Rate is :
2 * Number of Installments * Annual Interest Cost / (number of installments + 1) * Net Loan
which comes to : [2 * 12 * 33750 ] / [ 13 * 200000] = 31.15%
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