Task 1 - Task 1 Assessing loan options for Air Jet Best...

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Task 1: Assessing loan options for Air Jet Best Parts, Inc. The company needs to finance $8,000,000 for a new factory in Mexico. The funds will be obtained through a commercial loan and by issuing corporate bonds. Here is some of the information regarding the APRs offered by two well-known commercial banks. Bank APR Number of Times Compounded National First Prime Rate + 6.75% Semiannually Regions Best 13.17 Monthly 1. Assuming that AirJet Parts, Inc. is considering loans from National First and Regions Best, what are the EARs for these two banks? Hint for National Bank: Go to the St. Louis Federal Reserve Board’s website ( http://research.stlouisfed.org/fred2/ ). Select “Interest Rates” and then “Prime Bank Loan Rate”. Use the latest MPRIME. Show your calculations. (15 pts) National First Bank: EAR =[ ( 1 +{3.25 + 6.75%}/2 ) ^2 ]-1 EAR= [(1+10%/2)^2]-1 EAR= [(1.05)^2]-1 EAR=1.1025-1 EAR= 0.1025 EAR= 10.25% Regions Best:
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EAR =[ ( 1 +13.17%/12 ) ^12 ]-1 EAR =[ ( 1 +0.010975 ) ^12 ] -1 EAR =[ ( 1.010975 ) ^12 ] -1 EAR = 1.13995 - 1 EAR = 0.13995 EAR = 13.995% EAR = 14% 2.
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