CovidDelta Inc. can borrow $18 thousand for three months from a bank at an APR of 6.5%.
Question:
CovidDelta Inc. can borrow $18 thousand for three months from a bank at an APR of 6.5%. The loan has a loan origination fee of 1.9% on the principal of the loan charged when loan expires in three months. The bank also requires that CovidDelta Inc. keep an amount of 12% of the face value of the loan in a compensating balance account as long as the loan is outstanding. The bank pays interests of 0.65% APR with quarterly compounding on the compensating balance account. Calculate the effective annual rate (EAR) of this loan. Keep two decimal places, e.g. 9.99%.
c. OpenSkies Inc. can borrow $2.0 million for two months from a bank at an APR of 7.2%, using its inventory as collateral. The bank requires that a warehouse arrangement be used. The warehouse fee is $58 thousand, payable at the end of the loan. The loan has a loan origination fee of 1.1% on the principal of the loan charged when the loan expires. Calculate the effective annual rate (EAR) of this loan. Keep two decimal places, e.g. 9.99%.
Vector Mechanics for Engineers Statics and Dynamics
ISBN: 978-0073398242
11th edition
Authors: Ferdinand Beer, E. Russell Johnston Jr., David Mazurek, Phillip Cornwell, Brian Self