Question

Jamison Inc. needs to raise $500,000 for a nine-month term. Jamison's bank has offered to lend Jamison the money at a 8.00% simple interest rate. Jamison will receive the $500,000 upon approval of the loan and will pay back the principal and interest at maturity. Calculate the interest payment, the amount of cash received, the annual percentage rate (APR), and the effective annual rate (EAR) of this loan. Value Interest payment Amount of cash received Annual percentage rate (APR) Effective annual rate (EAR) Suppose the terms of the loan require that Jamison maintain a compensating balance equal to 15% of the loan balance, and Jamison will have to borrow the compensating balance from the bank. Calculate the interest payment, the amount of cash received, the annual percentage rate (APR), and the effective annual rate (EAR) of the loan considering the compensating balance requirement. Value Interest payment Amount of cash borrowed Annual percentage rate (APR) Effective annual rate (EAR)

Answer 1

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WORKING CAPITAL APPROACH - Microsoft Excel (Product Activation Failed) Review File Home Insert Page Layout Formulas Data View Add-Ins Σ AutoSum - Cut Wrap Text Calibri 11 General ECopy Fill Merge & Center Insert Delete Format Paste B I U +.0 .000 0C Conditional Format Cell Sort & Find & % Format Painter Formatting as Table Styles Clear Filter Select Editing Clipboard Font Alignment Number Styles Cells JE60 JD JC JE JF JG JH JJ 59 60 SIMPLE INTEREST 61 30000 500000*8%*9/12] 62 INTEREST PAYMENT 500000 [FULL LOAN AMOUNT RECEIVED] 63 AMOUNT OF CASH RECEIVED 8.00% [(30000/500000) X (12/9)] 8.08% [(1+0.15)^(12/9) 1] [NOTE 9 MONTH RATE = 30000/500000 0.06] 64 APR 65 EAR 66 67 68 69 COMPENSATING BALANCE 70 AS COMPENSATING BALANCE IS 15%, 500000/(1-0.15) = 588235.29 71 LOAN AMOUNT WILL BE 72 35294.12 588235.29 X 8% X (9/12)] 73 INTEREST PAYMENT 74 AMOUNT OF CASH BORROWED 588235.29 9.41% [(35294.12/500000) X (12/9)] APR 75 9.52% [(1+0.07059)^(12/9) 1] [NOTE: 9 MONTH RATE = 35294.12/500000 0.07059] 76 EAR 77 cash opti LINE OF CREDIT e0miller Sheet2 WC REQUIRE Z SCORE insu pv fv CARD Sheet1 ΒANKER ACCEPTANC FACTOR SI DISC FOCAL - Rea erences 130% WA 10:27 ENG 19-10-2019

Microsoft Excel (Product Activation Failed) WORKING CAPITAL APPROACH File Home Insert Page Layout Formulas Data Review View Add-Ins E AutoSum - Cut AC Wrap Text Calibri 11 General E Copy Fill Merge & Center Insert Delete Format Sort & Find & Paste B I U +.0 .00 Conditional Format Cell % .00 0 Format Painter Clear Filter Select Formatting as Table Styles Clipboard Font Alignment Number Styles Cells Editing fox JD93 JD JG JC JE JF JH JI 78 79 DISCOUNT LOAN 24000 [200000 x 16% X (9/12)] INTEREST PAYMENT 80 176000 [200000 24000] 18.18% -(24000/176000) *(12/9)] 18.58% [(1+0.136364)^(12/9) 1] AMOUNT OF CASH RECEIVED 81 82 APR 83 EAR [NOTE: 9 MONTH RATE = 24000/176000 0.136364] 84 85 86 PROCESSING FEE 87 24100 [24000 +100] 175900 [470000 100] 88 INTEREST PAYMENT 89 AMOUNT OF CASH RECEIVED 13.70% [24100/175900] 90 ANSWER 9 MONTHS RATE 91 92 93 94 95 96 Sheet1 cash opti LINE OF CREDIT eog miller Sheet2 WC REQUIRE insu pv fv Z SCORE CARD BANKER ACCEPTANC FACTOR SI DISC FOCAL Rea (- erences 130% + WA 10:31 ENG 19-10-2019