Question
Zerox Copying Company plans to borrow $208,000. New Jersey National Bank will lend the money at one-half percentage point over the prime rate at the
Zerox Copying Company plans to borrow $208,000. New Jersey National Bank will lend the money at one-half percentage point over the prime rate at the time of 10.50 percent (11 percent total) and requires a compensating balance of 22 percent. The principal in this case will be funds that the firm can effectively use in the business. This loan is for one year.
a. | What is the effective rate of interest? (Input your answer as a percent rounded to 2 decimal places. Use a 360-day year.) |
Effective rate of interest | % |
b. | What would the effective rate be if Zerox were required to make four quarterly payments to retire the loan? (Input your answer as a percent rounded to 2 decimal places.) |
Effective rate of interest | % |
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