Computing the cost of a simple interest loan

Montross Inc. needs to raise $$300,000$ for a nine$-$month term. Montross$$s bank has offered to lend Montross the money at a $12\mathrm{.}00\%$ simple interest rate. Montross will receive the $$300,000$ upon approval of the loan and will pay back the principal and interest at maturity.

Calculate the interest payment, the amount of cash received, the annual percentage rate $($APR$),$ and the effective annual rate $($EAR$)$ of this loan.

Value

Interest payment

Amount of cash received

Annual percentage rate $($APR$)$

Effective annual rate $($EAR$)$

Suppose the terms of the loan require that Montross maintain a compensating balance equal to $20\%$ of the loan balance, and Montross will have to borrow the compensating balance from the bank.

Calculate the interest payment, the amount of cash received, the annual percentage rate $($APR$),$ and the effective annual rate $($EAR$)$ of the loan considering the compensating balance requirement.

Value

Interest payment

Amount of cash borrowed

Annual percentage rate $($APR$)$

Effective annual rate $($EAR$)$