Gifts Galore Inc. borrowed $1.

Gifts Galore Inc. borrowed $1.5 million from National City Bank. The loan was made at a simple annual interest rate of 9% a year for 3 months. A 20% compensating balance requirement raised the effective interest rate. Do not round intermediate calculations. Round your answers to two decimal places.

  1. The nominal annual rate on the loan was 11.25%. What is the true effective rate?

    %

  2. What would be the effective cost of the loan if the note required discount interest?

    %

  3. What would be the nominal annual interest rate on the loan if the bank did not require a compensating balance but required repayment in three equal monthly installments?

    %

Cost of Bank Loans

Gifts Galore Inc. borrowed $1.5 million from National City Bank. The loan was made at a simple annual interest rate of 9% a year for 3 months. A 20% compensating balance requirement raised the effective interest rate. Do not round intermediate calculations. Round your answers to two decimal places.

  1. The nominal annual rate on the loan was 11.25%. What is the true effective rate?

    %

  2. What would be the effective cost of the loan if the note required discount interest?

    %

  3. What would be the nominal annual interest rate on the loan if the bank did not require a compensating balance but required repayment in three equal monthly installments?

    %

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