PROBLEM 7 Bank A offers loans with a 10 percent stated annual rate and a 10 perc
ID: 2677498 • Letter: P
Question
PROBLEM 7Bank A offers loans with a 10 percent stated annual rate and a 10 percent compensating balance. You wish to obtain $250,000 in a six-month loan.
a. How much must you borrow in order 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 in order to obtain $250,000 in usable funds if you currently have $10,000 on deposit at the bank? What is the effective annual rate on a six-month loan?
c. How much must you borrow in order to obtain $250,000 in usable funds if you currently have $30,000 on deposit at the bank?
d. What is the effective annual rate on a six-month loan?
Explanation / Answer
Questions seem really strange and too obvious it begins to confuse the reader, but I'll give it a shot.
A.How much must you borrow in order to obtain $250,000 in usable funds?
$250,000,10 percent stated annual rate
B.How much must you borrow in order to obtain $250,000 in usable funds if you currently have $10,000 on deposit at the bank?
$240,000, 10 percent stated annual rate
c. How much must you borrow in order to obtain $250,000 in usable funds if you currently have $30,000 on deposit at the bank?
$220,000, 10 percent stated annual rate
Hopefully this answered your question, best of luck.
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