19 Data Back Up Systems Has Obtained A 10000 90

Question

19) Data Back-Up Systems has obtained a $10,000, 90-day bank loan at an annual interest rate of 1…

19) Data Back-Up Systems has obtained a $10,000, 90-day bank
loan at an annual interest rate of 12%, payable at maturity. (Note:
Assume a 365-day year.)

a.How much interest (in dollars) will the firm pay on the 90-day
loan?

b.Find the 90-day rate on the loan

c.Annualize your result in part b to find the effective annual
rate for this loan, assuming that it is rolled over every 90 days
throughout the year under the same terms and circumstances.

Solutions

Expert Solution

a.

Interest Paid = 10,000(0.12)(90/365)

Interest paid = $300

b.

Rate of 90-day = 0.12*90/365

Rate of 90-day = 2.96%

c.

Annualized Rate = (1.0296)365/90 – 1

Annualized Rate = 12.56%


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