Question
You are considering borrowing 1 million SEK for one month at an APR of 12%. The bank will require a (no-interest) compensating balance of 6%
You are considering borrowing 1 million SEK for one month at an APR of 12%. The bank will require a (no-interest) compensating balance of 6% of the face value of the loan and will charge a 5000 SEK loan origination fee.
(a) Which total amount you must borrow to cover both the loan origination fee and the compensating balance requirement?
The total amount is SEK. (round to SEK, no decimals)
(b) What is the interest expense (including the origination fee) for the one-month loan?
The interest expense is SEK. (round to SEK, no decimals)
(c) What is the effective annual rate (EAR)?
The EAR is %. (round to two decimals)
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Actual borrowed amount 1000000 5000 094 106914894 Compensating Balance 10691489360...
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Fundamentals of Corporate Finance
Authors: Berk, DeMarzo, Harford
2nd edition
132148234, 978-0132148238
