Your company plans to borrow $11 million for 12 months, and your banker gives yo

Question

Your company plans to borrow $11 million for 12 months, and your banker gives you a stated rate of 22 percent interest.

Calculate the effective rate of interest for the following types of loans.

(a)

Simple 22 percent interest with a 22 percent compensating balance. (Round your answer to 2 decimal places. Omit the "%" sign in your response.)

Effective rate %

(b)

Discounted interest. (Round your answer to 2 decimal places. Omit the "%" sign in your response.)

Effective rate %

(c)

An installment loan (12 payments). (Round your answer to 2 decimal places. Omit the "%" sign in your response.)

Effective rate %

(d)

Discounted interest with a 11 percent compensating balance. (Round your answer to 2 decimal places. Omit the "%" sign in your response.)

Effective rate %

Explanation / Answer

a.2.42m/11m= 22% b.2.42/(11-2.42)= 28.21% c. [(2.42/12/11)+1]^12-1= 24.31% d. 1.21/(11-1.21)= 12.36%

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