Question

Your company plans to borrow $14 million for 12 months, and your banker gives you a stated rate of 20 percent interest. Calculate the effective rate of interest for the following types of loans. a. Simple 20 percent interest with a compensating balance of 8 percent. (Use a 360-day year. Input your answer as a percent rounded to 2 decimal places.) Effective rate of interest 21.74:% b. Discounted interest (with no compensating balance). (Input your answer as percent rounded to 2 decimal places.) Effective rate of interest c. An installment loan (12 payments). (Input your answer as a percent rounded to 2 decimal places.) Effective rate of interest % d. Discounted interest with a compensating balance of 4 percent. (Use a 360-day year. Input your answer as a percent rounded to 2 decimal places.) Effective rate of interest %

Answer 1

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- 2x WORKING CAPITAL APPROACH - Microsoft Excel (Product Activation Failed) File Home Insert Page Layout Formulas Data Review View Add-Ins % Cut Calibri 11 AA = = = Dr Wrap Text General Ea Copy Paste B I U B- SF A Merge Merge & Center - Center $ -% Format Painter % 4:0 .00 . Conditional Format Cell Formatting as Table Styles Clipboard Font Alignment Number Styles Insert Delete Format Σ AutoSum : A Fill Sort & 2 Clear Filter Editing Find & Select Cells HZ91 HV HW HX HY HZ I A IB IC 90 14000000 91 92 93 94 LOAN NO OF MONTHS RATE 12 20% 95 LOAN COMPENSATING BALANCE NET AMOUNT AVAILABLE FOR USE 14000000 1120000 [8% OF LOAN] 12880000 INTEREST 2800000 [20% OF LOAN) 96 97 98 99 100 101 102 103 104 b 105 106 107 108 EFFECTIVE RATE OF INTEREST = 21.74% (INTEREST/ NET AMOUNT AVAILABLE FOR USE] LOAN INTEREST NET AMOUNT AVAILABLE FOR USE 14000000 2800000 [20% OF LOAN 11200000 EFFECTIVE RATE OF INTEREST = Sheet1 Sheet2 Z SCORE insu pv fr cash opti ferences 25.00% [INTEREST/ NET AMOUNT AVAILABLE FOR USE] LINE OF CREDIT eogmiller CARD BANKER ACCEPTANC FACTOR SI DISC FOCAL WC REQUIRE Sheet30 IC BO Rea 130% 0 + . B 9 * 10 ENG 27-11-2019

WORKING CAPITAL APPROACH - Microsoft Excel (Product Activation Failed) Review View Add-Ins File Home Insert Page Layout Formulas Data - 2x % Cut Calibri Dr General 11 B- AA = = = A Wrap Text Merge Merge & Center - Center B I U SF 4:0 .00 . Insert Delete Format E Copy Paste Format Painter Clipboard HZ127 $ -% % Number Conditional Format Formatting as Table Styles Cell Styles Σ AutoSum : A Fill Sort & 2 Clear Filter Editing Find & Select Alignment Cells Font fic HV HW HX HY HZ IA IB IC 109 110 c AN INSTALLMENT LOAN INTEREST 12 PAYMENTS 2800000 [20% OF LOAN) 111 EFFECTIVE RATE 112 113 114 115 116 d 36.92% (2 X 12 X 2800000)/((12 +1) X 14000000) [2 X ANNUAL NO OF PAYMENTS X INTEREST)/((NO OF PAYMENTS +1) X LOAN AMOUNT) 117 118 119 LOAN COMPENSATING BALANCE INTEREST NET AMOUNT AVAILABLE FOR USE 14000000 560000 [4% OF LOAN] 2800000 [20% OF LOAN] 10640000 120 121 122 EFFECTIVE RATE OF INTEREST = 26.32% [INTEREST/ NET AMOUNT AVAILABLE FOR USE] 123 124 125 126 127 ► Z SCORE insu pv fv Sheet1 Sheet2 ferences cash opti LINE OF CREDIT eoq_miller CARDBANKER ACCEPTANC FACTOR SI DISC FOCAL WC REQUIRE Sheet3 | Rea | 201 130% . * . 40 0 ENG 27-11-2019 ... B 9