Montross Inc. needs to raise $300,000 for a nine-month term. Montross’s bank has offered to lend...

Montross Inc. needs to raise $300,000 for a nine-month term. Montross’s bank has offered to lend Montross the money at a 12.00% simple interest rate. Montross will receive the $300,000 upon approval of the loan and will pay back the principal and interest at maturity.

Calculate the interest payment, the amount of cash received, the annual percentage rate (APR), and the effective annual rate (EAR) of this loan.

	Value
Interest payment	______________
Amount of cash received	______________
Annual percentage rate (APR)	______________
Effective annual rate (EAR)	______________

Suppose the terms of the loan require that Montross maintain a compensating balance equal to 20% of the loan balance, and Montross will have to borrow the compensating balance from the bank.

Calculate the interest payment, the amount of cash received, the annual percentage rate (APR), and the effective annual rate (EAR) of the loan considering the compensating balance requirement.

	Value
Interest payment	______________
Amount of cash borrowed	______________
Annual percentage rate (APR)	______________
Effective annual rate (EAR)	______________

Expert Solution

ekkarill92 answered 1 year ago

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