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Calculate the interest payment on the one-day loan

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Reference no: EM131983400

Banks routinely borrow money among themselves overnight, in order to cover their transactions during the day. The interest rate paid on these one-day loans is called the overnight rate and therefore is a nominal rate of interest compounded daily, j365.

If the ABC Bank borrows $20 000 000 for one day at a rate of j365 = 4%,

  1. Calculate the interest payment on the one-day loan.
  2. Calculate the interest payment if the rate had been 4% compounded continuously.
  3. If ABC borrowed $25 000 000 and paid back $25 002 568 the next day, what effective rate of interest, j, was it charged?

Reference no: EM131983400

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