Question
1. Bravo Corporation recently issued 270-day commercial paper with a face value of $2,000,000 and a simple interest rate of 11 percent. The company paid
1. Bravo Corporation recently issued 270-day commercial paper with a face value of $2,000,000 and a simple interest rate of 11 percent. The company paid a transaction fee equal to 0.4 percent of the issue, which was taken out of the issue amount before the company received any funds. Assuming there are 360 days in a year, what is the commercial paper's effective annual rate (rEAR)? (Round your answer to two decimal places.)
2. Kerry Corporation is planning to get a 270-day $500,000 simple interest loan from its bank at a quoted interest rate of 12 percent. If the bank has a 20% compensating balance requirement and Kerry currently holds no funds at the lending bank, what is the effective annual rate (EAR) of the loan? (Assume there are 360 days in a year. Round your answer to two decimal places.)
3. A revolving credit agreement is:
created because of recurring short-term liabilities such as wages and taxes that change spontaneously with operations. | ||
the credit created when one firm buys on credit from another firm. | ||
an outright sale of receivables. | ||
an unsecured, short-term promissory note issued by large, financially sound firms to raise funds. | ||
a formal, committed arrangement in which a bank agrees to lend up to a specified maximum amount of funds during a designated period. |
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