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?

Solutions

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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