Cost of Bank Loans

Gifts Galore Inc. borrowed $1.9 million from National City Bank. The loan was made at a simple annual interest rate of 14% a year for 3 months. A 20% compensating balance requirement raised the effective interest rate. Do not round intermediate calculations. Round your answers to two decimal places.

A. The nominal annual rate on the loan was 11.75%. What is the true effective rate? Answer: 12.27

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B. What would be the effective cost of the loan if the note required discount interest? Answer: 19.59

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C. What would be the nominal annual interest rate on the loan if the bank did not require a compensating balance but required repayment in three equal monthly installments?

NEED answer to this one

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