Carey Company is borrowing $250,000 for one year at 10.0 percent from Second Intrastate Bank. The bank requires a 18 percent compensating balance. The principal refers to funds the firm can utilize effectively (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.) Effective rate of interest 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.) Effective rate of interest %
Carey Company is borrowing $250,000 for one year at 10.0 percent from Second Intrastate Bank. The bank requires a 18 percent compensating balance. The principal refers to funds the firm can utilize effectively (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.) Effective rate of interest 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.) Effective rate of interest %
Chapter16: Working Capital Policy And Short-term Financing
Section: Chapter Questions
Problem 14P
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Transcribed Image Text:Carey Company is borrowing $250,000 for one year at 10.0 percent from Second Intrastate Bank. The bank requires a 18 percent
compensating balance. The principal refers to funds the firm can utilize effectively (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.)
Effective rate of interest
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.)
Effective rate of interest
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