Question
Gordon Manufacturing, a producer of rotary mower blades, recently borrowed $100,000 from each of two banksbank A and bank B. The loans were incurred on
Gordon Manufacturing, a producer of rotary mower blades, recently borrowed $100,000 from each of two banksbank A and bank B. The loans were incurred on the same day, when the prime rate of interest was 6%. Each loan involved a 90-day note with interest to be paid at the end of 90 days. The interest rate was set at 112% above the prime rate on bank As fixed-rate note. Bank B set the interest rate at 1% above the prime rate on its floating-rate note. The rate charged over the 90 days will vary directly with the prime rate. Initially, the rate will be 7% (6% + 1%). After 30 days the prime rate rises to 6.5%, and after another 30 days it drops to 6.25%. What are the effective annual rates of Bank A and B respectively?
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