Compute effective annual interest rate

Assignment Help Finance Basics
Reference no: EM1365168

A bank offers your firm a revolving credit arrangement for up to $60 million at an interest rate of 1.52 percent per quarter. The bank also requires you to maintain a compensating balance of 6 percent against the unused portion of the credit line, to be deposited in a noninterest-bearing account. Assume you have a shortterm

investment account at the bank that pays 0.75 percent per quarter, and assume that the bank uses compound interest on its revolving credit loans.

a. What is your effective annual interest rate (an opportunity cost) on the revolving credit arrangement if your firm does not use it during the year?

b. What is your effective annual interest rate on the lending arrangement if you borrow $40 million immediately and repay it in one year?

c. What is your effective annual interest rate if you borrow $60 million immediately and repay it in one year?

 

Reference no: EM1365168

Questions Cloud

Average costs and variable costs : What problems are associated with using the average cost per unit as a performance measure? What problems are associated with using the variable cost per unit as a performance measure?
Conflict resolution training in organizations : In your own words, give detailed recommendations of how human resources can apply conflict resolution training in their organizations. Present new ideas/synthesis.
How three-fourths of them agreed with a number of statement : A survey of economists revealed that more than three-fourths of them agreed with a number of statements, including which of the following.
Evolution of health care economics : Describe the history and evolution of health care economics and the timeline of health care funding, using the terms economics, supply and demand, microeconomics, macroeconomics, elasticity, inelasticity, and Gross Domestic Product.
Compute effective annual interest rate : A bank offers your Corporation a revolving credit arrangement for up to $60 million at an interest rate of 1.52% per quarter. The bank also needs you to maintain a compensating balance of 6% against the unused portion of credit line.
Elucidate how industry consolidation has impacted : Elucidate how industry consolidation has impacted the company and make projections about the long-term prospects for the company.
Way to explain accounting to a non-accountant : What is the best way to explain accounting to a non-accountant? Analyze the importance of having a good understanding of accounting, and the implications of a lack of understanding have for business?
Healthcare organization and traditional businesses : For many years, healthcare organizations, as well as traditional businesses, have been frustrated that high customer satisfaction scores do not necessarily lead to higher levels of profitability or sales. Explain why this inconsistency tends to ex..
Calculate eps and cash dividend : Calculate the firm's 2003 earnings per share (EPS). How large a per share cash dividend did the firm pay on common stock during 2003?

Reviews

Write a Review

Finance Basics Questions & Answers

  Financial reporting and analysis

Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..

  A report on financial accounting

This report is specific for a core understanding for Financial Accounting and its relevant factors.

  Describe the types of financial ratios

Describe the types of financial ratios and other financial performance measures that are used during venture's successful life cycle.

  Differences between sole proprietorship and corporation

Briefly describe the major differences between a sole proprietorship and a corporation

  Prepare a cash budget statement

Calculate the expected value of the apartment in 20 years' time. What is the mortgage loan repayment at the beginning of each month

  What are the implied interest rates

What are the implied interest rates in Europe and the U.S.?

  State pricing theory and no-arbitrage pricing theory

State pricing theory and no-arbitrage pricing theory

  Small business administration

Identify the likely stage for each venture and describe the type of financing each venture is likely to be seeking and identify potential sources for that financing.

  Effect of financial leverage

The Effect of Financial Leverage and working capital management

  Evaluate the basis for the payment to the lender

Evaluate the basis for the payment to the lender and basis for the payment to the company-counterparty.

  Importance of opps, ipps, mpfs and dmepos

Research and discuss the differences and importance of : OPPS, IPPS, MPFS and DMEPOS.

  Time value of money

Time Value of Money project

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd