Bank loans

Short-term financing through bank loans

Consider this case:

Mildreds Brewing Corp. needs to take out a one-year bank loan of $500,000 and has been offered several different terms. One bank has offered a loan with 9% simple interest that requires monthly payments. The loan principal will be paid back at the end of the year.

Based on a 360-day year, what will be the monthly payment for June? (Hint: Remember that June has 30 days.)

a. $3,187.50

b. $4,500.00

c. $4,312.50

d. $3,750.00

Another bank has offered 6% add-on interest to be repaid in 12 equal monthly installments. What is the monthly payment on this add-on interest loan?

a. $44,166.67

b. $37,541.67

c. $53,000.00

d. $50,791.67

Choose the answer that best evaluates the following statement:

Fitcom Corp. needs to borrow $10,000,000. The company has been offered both simple interest and add-on interest loans. The add-on interest loan has a significantly lower interest rate than the simple interest loan.

a. The company needs to evaluate more factors than just the interest rate before deciding which type of loan it should accept.

b. The company should accept the add-on interest loan, because it will be paying less money in interest due to the lower interest rate.