Question

In: Finance

A company borrows $150,000 from a bank for 200 days. The bank charges interest at a rate of 7.3%.

A: At the stated rate of interest, how much would the company have to repay the bank at maturity?

B: If the note is discounted (interest is taken out upfront), what would the effective rate of interest be, and how much would have to be repaid at maturity?

Expert Solution

Part A:

Amount to be repaid = Loan + Int

Int = PTR

P = Principal

T = Time period

R = Int Rate per anum

= $ 150000 + $ 150000 * 7.3% * ( 200 / 365 )

= $ 150000 + $ 6000

= $ 156000

Part B:

Int Rate = Int Amount / [ Loan - Int ]

= $ 6000 / [ $ 150000 - $ 6000 ]

= $ 6000 / $ 144000

= 0.04167 for 200 days

Annual Int Rate = 4.167% * 365 / 200

= 0.076 I.e 7.60%

Amount to be repaid at maturity is Loan AmountI.e $ 150000.

jeff jeffy answered 2 years ago

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