Question
Suppose you're planning a vacation and decided to borrow $3,000 from a bank in the form of a discount loan for one year at a
Suppose you're planning a vacation and decided to borrow $3,000 from a bank in the form of a discount loan for one year at a stated annual interest rate of 9 percent, with interest paid monthly. Also, assume that the bank requires you to maintain a compensating balance equal to 15 percent of the initial loan value. 15. How much cash would you be able to use to spend on your vacation? a. $3,000 b. $2,730 c. $2,528 d. $2,550 e. $2,280
16. What is the effective annual rate you are being charged? a. 9.00% b. 9.38% c. 10.12% d. 11.22% e. 11.84%
17. If you actually need $3000 for your vacation today, how much would you have to borrow? a. $3,000 b. $3,561 c. $3,652 d. $3,720 e. $3,947
18. Would you have preferred to have interest paid monthly (current scenario), quarterly, or annually? Briefly explain.
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