PROBLEM 5 SHORT-TERM FINANCING (10 POINTS) 1. Your company plans to borrow $5 million for 9 month, and your banker gives you a stated rate of 12% interest. Part A. Compute the effective rate of interest for the loan, if it had a compensating balance requirement of 15% Part B. Compute the effective rate of interest if this were a discounted loan PROBLEM 6 WORKING CAPITAL MANAGEMENT (CONTINUED) B. Using the expectations hypothesis theory for the term structure of interest rates, determine the expected return for securities with maturities of two, three, and four years based on the following data: 1-year T-bill at beginning of year 1 5% 1-year T-bill at beginning of year 2 8% 1-year T-bill at beginning of year 3 7% 1-year T-bill at beginning of year 4 10% PROBLEM 6 WORKING CAPITAL MANAGEMENT (10 POINTS) A. Biochemical Corp. requires $550,000 in financing over the next three years. The firm can borrow the funds for three years at 10.6% interest per year. The CEO decides to do a forecast and predicts that if the company utilizes short-term financing instead, they will pay 8.75% interest in the first year, 13.25% interest in the second year, and 10.15% interest in the third year. Required: 1. Determine the total interest cost under each plan 2. Which plan is less costly