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Compare the 120 day and 90 day rates on the loans

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Reference no: EM132409594

Problem:1) The floral Boutique approached two banks to obtain a $10,000 bank loan. Bank "A" will give a 120 day loan at an annual interest rate of 12% and Bank "B" will give a 90 day loan at 15% ( note: Assume a 365 day year)

A) Based on the amount of interest to be paid, which bank loan should the floral Boutique choose?

B) Compare the 120 day and 90 day rates on the loans by finding the effective annual rate for each loan. Assume each loan is rolled over throughout the year under the same terms and circumstances.

C) Based on the effective annual rate for each loan, which bank loan should the floral Boutique choose?

Problem:2) After consultation with its employees, Sunshine company decides to switch the employee pay period to biweekly instead of weekly. Sunshine weekly payroll is $925,000. The annual cost of funds is 12%. Will it be beneficial for Sunshine Company to change the pay period? Explain your answer?

Reference no: EM132409594

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