Calculate the annualized rate of interest on the loan

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Reference no: EM131882597

You plan to borrow ?$10,000 from the bank to pay for inventories for a gift shop you have just opened. The bank offers to lend you the money at 12 percent annual interest for the 9 months the funds will be needed? (assume a? 360-day year).

a. Calculate the annualized rate of interest on the loan.

b. In? addition, the bank requires you to maintain a 12 percent compensating balance in the bank. Because you are just opening your? business, you do not have a demand deposit account at the bank that can be used to meet the? compensating-balance requirement. This means that you will have to put 12 percent of the loan amount? (which you had planned to use to help finance the? business) in a checking account. What is the cost of the loan? now?

c. In addition to the? compensating-balance requirement in part b?, you are told that interest will be discounted. What is the annualized rate of interest on the loan? now?

Reference no: EM131882597

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