What is effective rate of interest

Assignment Help Financial Management
Reference no: EM132037920

Carey Company is borrowing $350,000 for one year at 12.0 percent from Second Intrastate Bank. The bank requires a 18 percent compensating balance. The principal refers to funds the firm can effectively utilize (Amount borrowed Compensating balance).   

a. What is the effective rate of interest? (Use a 360-day year. Input your answer as a percent rounded to 2 decimal places.)

b. What would the effective rate be if Carey were required to make 12 equal monthly payments to retire the loan? (Use a 360-day year. Input your answer as a percent rounded to 2 decimal places.)

Reference no: EM132037920

Questions Cloud

Calculate values of mean return and variance for stock fund : Calculate the values of mean return and variance for the stock fund. Calculate the value of the covariance between the stock and bond funds.
What impact do these have on the public sector : What would you consider as some of the top issues in privacy and computer security today? What impact do these have on the public sector?
What is your effective interest rate for the payment plans : If you borrow $7,000 at $690 interest for one year, what is your effective interest rate for the following payment plans?
What would be rose component cost of preferred stock : Rose has preferred stock selling for 84.0 percent of par that pays a 11.0 percent annual coupon. What would be Rose's component cost of preferred stock?
What is effective rate of interest : What is the effective rate of interest? What would the effective rate be if Carey were required to make 12 equal monthly payments to retire the loan?
What is the average receivables balance : Dome Metals has credit sales of $288,000 yearly with credit terms of net 120 days, What is the average receivables balance?
What will be the rate of return on investment in bond : If the investors forecast accurately, what will be the rate of return on an investment in this bond over the next year?
What is the likely yield to maturity on the bonds : The bonds are only forecasted to pay 82% of their par value. What is the likely yield to maturity on the bonds?
Compute the anticipated return after financing costs : Compute the anticipated return after financing costs with the most aggressive asset-financing mix.

Reviews

Write a Review

Financial Management Questions & Answers

  Based on the irr and cost of capital

The company will run the server for the next 5 years. Based on the IRR and cost of capital, should they accept the project?

  Amount of the recorded gain or loss from retiring the bonds

On January 1, 2013, Shay issues $380,000 of 9%, 15-year bonds at a price of 97.25. Six years later, on January 1, 2019, Shay retires 30% of these bonds by buying them on the open market at 105.25. What is the amount of the recorded gain or loss from ..

  Cost of equity and cost of debt

Your firm has a cost of equity of 11%, a cost of debt of 5% and a 30% tax rate. You have two projects that appear very similar on the surface: Project X and Y both have CAPEX of $2,000,000 upfront at t0 and yield $500,000 each year in perpetuity star..

  Calculate the value of the put if it had been european-style

Calculate the value of the Buffelhead American put. Calculate the value of the put if it had been European-style.

  About the after-tax cost of debt without flotation cost

The Heuser Company's currently outstanding bonds have a 10% coupon and a 13% yield to maturity. Heuser believes it could issue new bonds at par that would provide a similar yield to maturity. If its marginal tax rate is 40%, what is Heuser's after-ta..

  The expected rate of return on the market

A share of stock is now selling for $120. It will pay a dividend of $10 per share at the end of the year. Its beta is 1. What do investors expect the stock to sell for at the end of the year? Assume the risk-free rate is 6% and the expected rate of r..

  Commercial loans with an average duration

If Main Street Bank has $100 million in commercial loans with an average duration of 0.40 years; $40 million in consumer loans with an average duration of 1.75 years; and $30 million in U.S. Treasury bonds with an average duration of 6 years, what is..

  What are the balances in the three stockholders equity

On October 1st Martin Corp have the following balance in stockholders’ equity. What are the balances in the three stockholders equity accounts after the new shares have been distributed? What, if any, is the new par value?

  Bond issue outstanding with an annual coupon

Quantitative Problem: Potter Industries has a bond issue outstanding with an annual coupon of 6% and a 10-year maturity. The par value of the bond is $1,000. If the going annual interest rate is 7.2%, what is the value of the bond? Round your answer ..

  What is the? bond yield to maturity

What is the? bond's yield to maturity? (expressed as an APR with semiannual? compounding)?

  Calculate the values for the currency to deposit ratio

Calculate the values for the currency-to-deposit ratio, the ratio of total reserves to deposits, the monetary base, the M1 money multiplier, and the M1 money supply.

  Find the present value of the following ordinary annuities

Find the present value of the following ordinary annuities: a. $400 per year for 10 years at 10% b. $200 per year for 5 years at 5% c. $400 per year for 5 years at 0% d. Now rework parts a, b, and c assuming that payments are made at the beginning of..

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