Calculate the effective interest rate for fidelity bank

Assignment Help Financial Management

Reference no: EM13883500

Competing terms from banks (LO2) Summit Record Company is negotiating with two banks for a $151,000 loan. Fidelity Bank requires a 28 percent compensating balance, discounts the loan, and wants to be paid back in four quarterly payments. Southwest Bank requires a 14 percent compensating balance, does not discount the loan, but wants to be paid back in 12 monthly installments. The stated rate for both banks is 10 percent. Compensating balances will be subtracted from the $151,000 in determining the available funds in part a.

a. Calculate the effective interest rate for Fidelity Bank and Southwest Bank. Which loan should Summit accept?

b. Recompute the effective cost of interest, assuming that Summit ordinarily maintains $42,280 at each bank in deposits that will serve as compensating balances.

c. Does your choice of banks change if the assumption in part b is correct?

Reference no: EM13883500

Questions Cloud

What is the implied present value of growth opportunities : One year ago, the Chinese e-commerce company Alibaba Group floated its shares in the biggest Initial Public Offering in US history. Alibaba Group priced its shares at $68 raising $21.8 bn and valuing the company at $167.6 bn. What is the payout ratio..

Comment on relevant ifrs standard related to capital market : Based on the above statement, Students are required to do research and write an essay of 1500 words (with proper references) which demonstrates their understanding about the Topic, outline the justifications and controversy of IFRSs.

What is the price of the stock today : Ada purchased stock in Umbrella Company five years ago at a price of $ 31 . Over the last five years, the stock has changed by -2.32 % . What is the price of the stock today? Round your answer to the nearest cent.

Explain what type of architecture new payroll application : Explain what type of architecture the new payroll application

Calculate the effective interest rate for fidelity bank : Competing terms from banks (LO2) Summit Record Company is negotiating with two banks for a $151,000 loan. Fidelity Bank requires a 28 percent compensating balance, discounts the loan, and wants to be paid back in four quarterly payments. Calculate th..

Cases of buyer and seller of put option in case : We have 20,000 shares of IBM, which we bought for $50 per share. We buy protective puts against them at a strike price of $62 for which we have to pay a $2 premium. Explicate on the results and the ROR we make in the following two cases. Explain the ..

Evidence of familiarity with relevant literature and theory : Application of the key concepts of the theory to your own personality and behaviour. Evidence of familiarity with relevant literature and theory. Evidence of self-awareness and ability to self reflect

Market expected return : A stock has an expected return of 18 percent, its beta is 1.45, and the risk-free rate is 4 percent. What must the expected return on the market be?

Prepare a report on sensors in the multi pump system : Prepare a report on Sensors in the Multi Pump System - summary should state the purpose of the paper.

User Account

All Pages