Answer part B Tho bank has chosen eight accounts to aing S20

Tho bank has chosen eight accounts to aing S200 ? ? that t will accopt as Acoust\" receivable?0olateral, east of bo re ing Mamum Ba khas ana ped te ooco es receivatie of Scientife Schare, ie colateral. The bank\'s termsrade alardng rate set at prime + 35% and?2%oommission charge. The prime rat. eurrentlyisg%. e k e?nt he accorts by 10% forreums and allowances reen willend up to 90%oft e a sted acceptable colateral. What is the mornm amount that te bank wil lend to Scent e Softwa b mat sSo Sfc S havs em tve m a rato oitrns\" t to ows S120 000 fr 12 morts? For 6 morts? For 3 morths? Nole Assumo a 36. ry year and a prie an ator ars at g% durma neit of the loan.) a The maxum amout that the bank will land to Sciertfic Software is $ 162000 (Round to the nearest dolar) b. \"befim borrows S120,000for12morths, the effectve anual rams(®%. Rund to two docinal plaan the offective anrual rale i Enter your answer in the wer box and then click Check Answer

Solution

b. Amount borrowed = $120,000

Interest rate = 9+3.5 = 12.5%

Commission = 2% on 120,000 = $2,400

12 months period: Interest paid = 12.5% of 120,000 = $15,000

Thus total cost = 15,000+2400 = 17,400.

Effective annual rate = 17400/120,000 = 14.50%

6 months period: Interest paid = 15000/2 = 7500. Total cost = 7500+2400 = 9900

Six months rate = 9900/120,000 = 8.25%

Effective annual rate = (1+8.25%)^2 – 1

= 17.18%

3 months period: Interest paid = 15000/4 = 3750. Total cost = 3750+2400 = 6150

3 months rate = 6150/120,000 = 5.13%

Effective annual rate = (1+5.13%)^4 – 1

= 22.13%