Question
Carey Company is borrowing $200,000 for one year at 9.0 percent from Second Intrastate Bank. The bank requires a 20 percent compensating balance. The principal
Carey Company is borrowing $200,000 for one year at 9.0 percent from Second Intrastate Bank. The bank requires a 20 percent compensating balance. The principal refers to funds the firm can effectively utilize (Amount borrowed ? Compensating balance).
a. What is the effective rate of interest? (Use a 360-day year. Input your answer as a percent rounded to 2 decimal places.)
b. What would the effective rate be if Carey were required to make 12 equal monthly payments to retire the loan?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
a To calculate the effective rate of interest when a portion of the loan is frozen as a compensating ...
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Step: 2
Step: 3
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Foundations of Financial Management
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen
15th edition
77861612, 1259194078, 978-0077861612, 978-1259194078
