FM27 10 - be 12.088% 12.09%. c. Installment loan: PMT =...

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27-9 a. The quarterly interest rate is equal to 11.25%/4 = 2.8125%. Effective annual rate = (1 + 0.028125) 4 - 1 = 1.117336 - 1 = 0.117336 = 11.73%. b. 0 1 | | i = ? 1,500,000 -1,500,000 -33,750 (discount interest) 300,000 -300,000 (compensating balance) -1,200,000 1,166,250 With a financial calculator, enter N = 1, PV = 1166250, PMT = 0, and FV = -1200000 to solve for I = 2.89389% 2.89%. However, this is a periodic rate. Effective annual rate = (1 + 0.0289389) 4 - 1 = 12.088% 12.09%. Note that, if Gifts Galore actually needs $1,500,000 of funds, it will have to borrow 2 . 0 0225 . 0 1 000 , 500 , 1 $ = 7775 . 0 000 , 500 , 1 $ = $1,929,260.45. The effective interest rate will still
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Unformatted text preview: be 12.088% 12.09%. c. Installment loan: PMT = ($1,500,000 + $33,750)/3 = $511,250. INPUT N = 3, PV = 1500000, PMT = -511250, FV = 0. OUTPUT = I = 1.121% per month. Nominal annual rate = 12(1.121%) = 13.45%. 27-10 a. Malones current accounts payable balance represents 60 days purchases. Daily purchases can be calculated as 60 500 $ = $8.33. If Malone takes discounts then the accounts payable balance would include only 10 days purchases, so the A/P balance would be $8.33 10 = $83.33. If Malone doesnt take discounts but pays in 30 days, its A/P balance would be $8.33 30 = $250. Answers and Solutions: 27 - 10...
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This note was uploaded on 07/13/2011 for the course FIN 4414 taught by Professor Staff during the Spring '08 term at University of Florida.

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