The brothers are considering taking out a 1-year bank loan for $100,000 to finance part of their
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The brothers are considering taking out a 1-year bank loan for $100,000 to finance part of their working capital needs and have been quoted a rate of 8 percent. What is the effective annual cost rate assuming (1) simple interest, (2) discount interest, (3) discount interest with a 10 percent compensating balance, and (4) add-on interest on a 12-month installment loan? For the first 3 of these assumptions, would it matter of the loan were for 90 days, but renewable, rather than for a year?
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1 With a simple interest loan they gets the full use of the 100000 for a year and then pay 008100000 8000 in interest at the end of the term along with the 100000 principal repayment For a 1year simpl...View the full answer
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Related Book For 
Financial management theory and practice
ISBN: 978-0324422696
12th Edition
Authors: Eugene F. Brigham and Michael C. Ehrhardt
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