Essay
In order to finance a shipment of badminton sets, Rujisawa Import-Export is seeking a $700,000 one-year bank loan. The Marine Bank requires that Rujisawa maintain a 25% compensating balance and requires four quarterly payments. The Lincoln Bank requires only a 15% compensating balance, but requires 12 monthly payments. In addition, Lincoln discounts the loan. Both banks state that their interest rate is 8%.
a) Which bank has the lowest effective interest rate?
(NOTE: deduct the compensating balances from the principal in determining the effective rate)
b) If Lincoln Bank eliminated its compensating-balance requirement, would your answer change?
Correct Answer:
Verified
Correct Answer:
Verified
Q37: Trade credit is usually extended for periods
Q40: The cost of not taking a 2/10,
Q53: The Truth in Lending law is designed
Q55: Although the LIBOR has remained competitive and
Q57: Myrdal Boots can borrow from its bank
Q59: The APR is generally lower than the
Q80: On 2/10, net 30 trade terms, if
Q97: A trust receipt acknowledges that the lender
Q111: It is easier for small firms to
Q117: From the banker's point of view, short-term