Answer |
Prime: Total cost |
5000*11%=550 |
LIBOR : Total cost |
5000(11%-1.5%)+45 |
Therefore |
LIBOR has lower effective interest cost |
Dr. Ruth is going to borrow $5,000 to help write a book. The loan is for...
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Dr. Ruth is going to borrow $7,200 to help write a book. The loan is for one year and the money can either be borrowed at the prime rate or the LIBOR rate. Assume the prime rate is 12 percent and LIBOR 2.5 percent less. Also assume there will be a $45 transaction fee with LIBOR(this amount must be added to the interest cost with LIBOR) a. What is the effective interest rate on the LIBOR loan? (Use a...
Installment Loan Schedule Assume you are to borrow money, the loan amount, at an annual interest rate to be paid in equal installments each period Loan Amount $ 25,000 9.90% Annual Interest Rate Periods per year 12 Years to payback See Table B.3 in book. 47.17454194 FACTOR = [1 -(1 / ((1R)An)]/ R Factor $ Equal Payments 529.95 let R = period interest rate number of periods to payback loan let n Number of periods: 60 Reduction in Principal Interest...
Mary Ott is going to borrow $14.600 for 45 days and pay S185 interest. What is the effective rate of interest if the loan is discounted? (Use a 360-day year. Do not round intermediate calculations input your answer as a percent rounded to 2 decimal places.)
Exercises #11 1. Xtra Corporation needs $50,000 for three months to finance its working capital. The company has arranged a short-term loan with a bank. The bank charges 8% annual interest rate with interest paid in advance. The bank also requires 5% of the borrowed amount as a compensating balance. Assume Xtra does not have money to serve as a compensating balance and pay interest upfront 1.1 How much Xtra have to borrow? 1.2 Find effective cost of bank loan...
4- Assume that you can borrow $175,000 for one year from a local commercial bank a. The bank loan officer offers you the loan if you agree to pay $16,000 in interest plus repay the $175,000 at the year. What is the percent interest rate or effective cost? discount loan at 9 percent interest. What is the percent interest rate or effective cost? c. Which one of the two loans would you prefer? 5- Assume that the interest a. If...
Question 1 A loan repayment plan is scheduled to be made as 10 uniform monthly payments of $1,500. The first repayment is expected to take place on May 30th. Subsequent repayments will take place at the ends of each subsequent month. For simplicity, assume that each month is precisely 30 days. The loan has a nominal annual interest rate of prime rate + 2.5%. If the prime rate, set by the lending bank, is currently 3.95%. Assuming that the prime...
nitiduri APK 18-8A/(Cost of short-term bank loan) The Southwest Forging Corporation recently arranged for a line of credit with the First National Bank of Dallas. The terms of the agreement called for a $100,000 maximum loan with interest set at 1 percent over prime. In addition, the firm has to maintain a 20 percent compensating balance in its demand deposit account throughout the year. The prime rate is currently 12 percent. V a. If Southwest normally maintains a $20,000 to...
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Suppose that you have just borrowed $250,000 in the form of a 30 year mortgage. The loan has an annual interest rate of 9% with monthly payments and monthly compounding. a. What will your monthly payment be for this loan? b. What will the balance on this loan be at the end of the 12th year? How much interest will you pay in the 7th year of this loan? d. How much of the 248th payment will...
Inventory financing - Raymond Manufacturing faces a liquidity crisis - it needs a loan of $149,000 for 1 month. Having no source of additional unsecured borrowing the firm must find a secured short term lender. The firm's accounts receivable are quite low, but its inventory is considered liquid and reasonably good collateral. The book value of the inventory is $447,000 of which $178,800 is finished goods (Note: assume a 365-day year) 1.City-wide Bank will make a $149,000 trust receipt loan...
Raymond Manufacturing faces a liquidity crisis —it needs a loan of $93,000 for 1 month. Having no source of additional unsecured borrowing, the firm must find a secured short-term lender. The firm's accounts receivable are quite low, but its inventory is considered liquid and reasonably good collateral. The book value of the inventory is$279,000, of which $111,600 is finished goods. (Note: Assume a365-day year.) (1) City-Wide Bank will make a $93,000 trust receipt loan against the finished goods inventory....