Homework Answers
1) Principle amount = $5million
time = 1 year
rate= 10%
therefore, interest to be paid = 10%*5million = $500,000
Now in a discounted loan, the bank would pay themselves the
interest amount, i.e $500000. So the company will walk out of the
bank with 5million - 500000= $4.5 million but in essence the
company will still owe $5million.
therefore effective interest rate will be,
Rate = interest/ effective amount borrowed
= 500000/4500000 = 11.11%
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Please provide explanations as well.
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journal entry?
(3) The company obtained its first loan of $300,000 from a bank on 1 February 20x3. $30,000 would be repaid on every 1 February and 1 August, commencing from 1 February 20x4. The loan carries an interest rate of 6% per annum. Interest was payable semi-annually in arrears on every 1 February and 1 August. The company obtained its second loan of $50,000 on 1 November 20x6 at an interest rate of 7.2% per annum. Both the loan...
Corporate Finance – Chapter 27- Short Term Financial
Planning
Q. 05: The Treadwater Bank wants to raise $1.1 million using three-month commercial paper. The net proceeds to the bank will be $1,084,600. What is the effective annual rate of this financing for Treadwater? Solution: Q. 06: The Needy Corporation borrowed $14,000 from Bank Ease. According to the terms of the loan, Needy must pay the bank $488 in interest every three months for the three-year life of the loan, with...
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