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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 Calculating the cost of shortterm financing You plan to borrow $ from the bank to pay for inventories for a gift shop you have just
opened. The bank offers to lend you the money at percent annual interest for the months the funds will be needed assume a day year
a Calculate the annualized rate of interest on the loan.
b In addition, the bank requires you to maintain a 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 compensatingbalance requirement. This means that you will have to put 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 compensatingbalance 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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