2 Slipshod Machine Tool Co owes 40000 to one of its supplier

2. Slipshod Machine Tool Co. owes $40,000 to one of its suppliers. He has four choices: a) Slipshod can borrow from First City Bank will loan the funds for 20 days at a cost of $400 b) Slipshod can borrow from Gold Bank offers a discounted loan for 20 days at a cost of $350 c) Slipshod can borrow from Nice Bank an installment loan for one year, for total interest of $2,400, he will have to pay monthly installments Slipshod can borrow from Nice Bank an installment loan for one year, for total interest of $2,400, he will have to pay quarterly installments d) For options a and b, calculate the annual interest rate. For option C, calculate the effective annual interest rate.

Solution

a) First City Bank (400/40000)*(360/20) 18.00% b) Gold Bank (350/40000)*(360/20) 15.75% c) Total paid back 42400 Monthly installment 3533.33 APR 10.90% =RATE(12,3533.33,-40000,0,0)*12