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# quiz 6 answers - a If the bank requires a 20 minimum...

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here are ten answers in Quiz 6. Each answer is worth of 1 point. Please check the solutions below. If you have any questions, please post them here. 1. Slipshod Machine Tool Co. owes \$40,000 to one of its suppliers. The supplier has offered a trade discount of 2/10 net 30. Slipshod can borrow the funds from either of two banks: First City Bank offers a simple payment loan for 20 days with interest \$400; Upstart Bank offers a discounted loan for 20 days with interest \$320. a. What is the cost of failing to take the discount? b. What is the cost of failing to take the discount if Slipshod can stretch its payment to 45 days? c. What is the effective interest rate on each of the loans? d. Should Slipshod take the discount? If so, which bank should Slipshod obtain the funds from? a. 2% / (100% – 2%) × 360 / (30 – 10) = 36.73% b. 2% / (100% – 2%) × 360 / (45 – 10) = 20.99% c. 400 / 40,000 × 360 / 20 = 18% 320 / (40,000 – 320) × 360 / 20 = 14.52% d. Yes, Upstart Bank. 2. Kramerica Industries is seeking to borrow \$100,000 from National Bank.

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Unformatted text preview: a. If the bank requires a 20% minimum compensating balance, how much will Kramerica be able to effectively use? b. If the bank quotes a rate of 8%, what is the effective rate on this loan with the compensating balance requirement? c. If Kramerica needs to use \$100,000, how much must be borrowed? a. 100,000 × 80% = 80,000 b. 8% / (1 – 20%) = 10% c. 100,000 / (1 – 20%) = 125,000 3. Vandelay Industries is borrowing \$60,000 from Morehead State Bank. The total interest is \$12,000. The loan will be paid by making equal monthly payments for the next three years. What is the effective rate of interest on this installment loan? (2 × 12 × 12,000) / [(36 + 1) × 60,000] = 12.97% 4. A company plans to borrow \$2 million for a year. The stated interest rate is 12%. If there is a 20% compensating balance requirement, what is the effective interest rate? (2,000,000 × 12%) / (2,000,000 – 400,000) × 360 /360 = 15%...
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quiz 6 answers - a If the bank requires a 20 minimum...

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