Question
1) Company A is currently cash-constrained, and must make a decision about whether to delay paying one of its suppliers, or taking out a loan.
1) Company A is currently cash-constrained, and must make a decision about whether to delay paying one of its suppliers, or taking out a loan. They owe the supplier $20172, and they can borrow the money from Bank A, which has offered to lend the firm $20172 for 1 month(s) at an APR (compounded) of 14%. The bank will require a (no-interest) compensating balance of 7% of the face value of the loan and will charge a $165 loan origination fee, which means Hand-to-Mouth must borrow even more than the $20172. Compute the EAR of the loan.
2) Calculate the annual effective cost of a $21433 loan with an APR of 4.43%, compounded monthly
3) Calculate the annual effective cost of a $14935 loan with an APR of 5.08%, compounded annually, with a compensating balance requirement of 17%
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