Your company plans to borrow $13 million for 12 months, and your banker gives yo
ID: 2752043 • Letter: Y
Question
Your company plans to borrow $13 million for 12 months, and your banker gives you a stated rate of 24 percent interest.
Calculate the effective rate of interest for the following types of loans.
Simple 24 percent interest with a compensating balance of 10 percent. (Use a 360-day year. Input your answer as a percent rounded to 2 decimal places.)
Discounted interest (with no compensating balance). (Input your answer as a percent rounded to 2 decimal places.)
An installment loan (12 payments). (Input your answer as a percent rounded to 2 decimal places.)
Discounted interest with a compensating balance of 5 percent. (Use a 360-day year. Input your answer as a percent rounded to 2 decimal places.)
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Your company plans to borrow $13 million for 12 months, and your banker gives you a stated rate of 24 percent interest.
Explanation / Answer
a)
Effective interest rate:
= 24%÷(1-10%)
= 26.66%
b)
Question not clear
c)
= ((EMI×12)-Borrowing amount)÷Borrowing amount
= (([P×r×(1+r)^n]÷[(1+r)^n-1]×12)-Borrowing amount)÷Borrowing amount
= (([13,000,000×2%×(1+2%)^12]÷[(1+2%)^12-1]×12)-13,000,000)÷13,000,000
= 13.47%
d)
Effective interest rate:
= 24%÷(1-5%)
= 25.26%
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