Symco Corp. needs $500,000 for 90 days to get through a period of unexpectedly h
ID: 2761113 • Letter: S
Question
Symco Corp. needs $500,000 for 90 days to get through a period of unexpectedly high oil prices. Symco's line of credit with the bank allows the company to borrow at 6% per year with a compensating balance of 10% of the amount borrowed. Currently, Symco has no money on deposit with the bank. a. Calculate the amount Symco must borrow to meets its needs plus the compensating balance. b. What is the annual percentage rate for this financing? c. If the bank requires discount interest, what is the annual percentage rate for this financing?
Explanation / Answer
a)
amount to be borrowed = amount needed/(1-compensating balance%)
=500000/(1-0.1) = 555555.56
b)
Annual percentage rate = interest/(principal-compensating balance)*days in the year/days of loans outstanding
=(0.06*500000*90/360)/(500000-50000)*360/90 = 6.67%
c)
Annual percentage rate = Discounted interest/(principal-compensating balance)*days in the year/days of loans outstanding
=(0.06*500000*90/360)/(500000-0.06*500000*90/360)*360/90 = 6.09%
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.