Automotive Accessories needs to borrow $135,000 for 6 months for renovations. It is considering two financing options:
Question:
Automotive Accessories needs to borrow $135,000 for 6 months for renovations. It is considering two financing options: Bank Helping Hand offers an 8% annual rate subject to a 10% compensating balance. Bank Friendly Financer offers the funds as a discount loan with an annual rate of 8%. Automotive Accessories maintains no deposit balances in either bank, and repayment will be a single lump sum at maturity.
a. What is the effective annual rate of interest on each loan?
b. Suggest ways that Automotive Accessories can reduce the interest rates on these loans.
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a For Bank Helping Hands loanFirst calculate the amount of compensating ...View the full answer
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Related Book For 
Principles Of Managerial Finance
ISBN: 9781292018201
14th Global Edition
Authors: Lawrence J. Gitman, Chad J. Zutter
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