Chapter 14Current Liabilities Management14933.The effective interest rate is(a)higher on a loan if interest is paid at maturity.(b)lower if the loan is a discount loan.(c)higher if the loan is a discount loan.(d)not affected by whether the loan is a discount loan or a loan with interest paid at maturity.Answer: C
Level of Difficulty: 3Learning Goal: 3Topic: Effective Interest Rate34.A bank lends a firm $1,000,000 for one year at 12 percent on a discounted basis and requirescompensating balances of 10 percent of the face value of the loan. The effective annual interest rateassociated with this loan isLevel of Difficulty: 3
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Learning Goal: 3Topic: Effective Interest Rate (Equation 15.4)35._________ effectively raises the interest cost to the borrower on a line of credit.Level of Difficulty: 3
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Learning Goal: 3Topic: Compensating Balances36.A bank lends a firm $500,000 for one year at 8 percent and requires compensating balances of10 percent of the face value of the loan. The effective annual interest rate associated with this loan isLevel of Difficulty: 3
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Learning Goal: 3Topic: Compensating Balances and Effective Interest Rates (Equation 15.3)