bank A offers loans with a 10 percent stated annual rate and a 10 percent compen

Question

bank A offers loans with a 10 percent stated annual rate and a 10 percent compensating balance. you wish to obtain 250000 in a six month loan.

a. how much must you borrow to obtain $250,000 in usable funds? assume you currently do not have any funds on deposit at the bank. what is the effective annual rate on a six month loan?

b. how much must you borrow to obtain $250000 in usable funds if you currently have $10000 on deposit at the bank? what is the effective annual rate on a six month loan?

c. how much must you borrow to obtain $250,000 in usable funds if you currently have 30000 on deposit at the bank?

d. what is the effective annual rate on a six month loan?

Explanation / Answer

a. how much must you borrow to obtain $250,000 in usable funds? assume you currently do not have any funds on deposit at the bank. what is the effective annual rate on a six month loan? AMount borrowed = X So we have 10%*X+250,000 = X ie X = 250,000/0.90 = $277,778 So Amt borrowe is $277,778 effective annual rate EAR = (1+i/n)^n - 1 = (1+10%/1)^1 - 1 = 10% b. how much must you borrow to obtain $250000 in usable funds if you currently have $10000 on deposit at the bank? what is the effective annual rate on a six month loan? AMount borrowed = X So we have 10%*X+ (250,000-10000) = X ie X = 240,000/0.90 = $266,667 So Amt borrowe is $266,667 effective annual rate EAR = (1+i/n)^n - 1 = (1+10%/1)^1 - 1 = 10% c. how much must you borrow to obtain $250,000 in usable funds if you currently have 30000 on deposit at the bank? AMount borrowed = X So we have 10%*X+ (250,000-30000) = X ie X = 220,000/0.90 = $244,444 So Amt borrowe is $244,444 d. what is the effective annual rate on a six month loan? effective annual rate EAR = (1+i/n)^n - 1 = (1+10%/1)^1 - 1 = 10%

Related Questions

Navigate

• Browse (All)
• Browse B
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.