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( Related to Checkpoint 1 8 . 3 ) ( Calculating the cost of short - term financing ) You plan to borrow $ 2

(Related to Checkpoint 18.3)(Calculating the cost of short-term financing) You plan to borrow $20,000 from the bank to pay for inventories for a gift shop you have just
opened. The bank offers to lend you the money at 9 percent annual interest for the 3 months the funds will be needed (assume a 360-day year).
a. Calculate the annualized rate of interest on the loan.
b. In addition, the bank requires you to maintain a 14 percent compensating balance in the bank. Because you are just opening your business, you do not have a demand
deposit account at the bank that can be used to meet the compensating-balance requirement. This means that you will have to put 14 percent of the loan amount (which you
had planned to use to help finance the business) in a checking account. What is the cost of the loan now?
c. In addition to the compensating-balance requirement in part b, you are told that interest will be discounted. What is the annualized rate of interest on the loan now?
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