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Please solve step by step all the sections that need to be answered in the question. (Estimating the cost of bank credit) Paymaster Enterprises has
Please solve step by step all the sections that need to be answered in the question.
(Estimating the cost of bank credit) Paymaster Enterprises has arranged to finance its seasonal working-capital needs with a short-term bank loan. The loan will carry a rate of 12 percent per annum with interest paid in advance (discounted). In addition, Paymaster must maintain a minimum demand deposit with the bank of 10 percent of the loan balance throughout the term of the loan. If Paymaster plans to borrow $1,700,000 for a period of 3 months, what is the effective cost of the bank loan? Hint. Assume the Paymaster does not have sufficient funds in the bank to satisfy the compensating balance requirement. The effective cost, or APR, of the bank loan is? % (Round to two decimal places.)Step by Step Solution
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