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Calculate the interest payment

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Wallace Inc. needs to raise $500,000 for a nine-month term. Wallace's bank has offered to lend Wallace the money at a 16.00% simple interest rate. Wallace will receive the $500,000 upon approval of the loan and will pay back the principal and interest at maturity. Calculate the interest payment, the amount of cash received, the annual percentage rate (APR), and the effective annual rate (EAR) of this loan.

 

Value

Interest payment

Amount of cash received

 

Annual percentage rate (APR)

 

Effective annual rate (EAR)

 

Suppose the terms of the loan require that Wallace maintain a compensating balance equal to 10% of the loan balance, and Wallace will have to borrow the compensating balance from the bank. Calculate the interest payment, the amount of cash received, the annual percentage rate (APR), and the effective annual rate (EAR) of the loan considering the compensating balance requirement.

Value

Interest payment

Amount of cash borrowed

 

Annual percentage rate (APR)

Effective annual rate (EAR)

 

 

Reference no: EM133117086

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