Suppose You Borrow R2,000 from a Bank for One Year

question 8

Multiple Choice

Suppose you borrow R2,000 from a bank for one year at a stated annual interest rate of 14 percent, with interest prepaid (a discounted loan) .Also assume that the bank requires you to maintain a compensating balance equal to 20 percent of the initial loan value.What effective annual interest rate are you being charged?

• A) 14.00%
• B) 8.57%
• C) 16.28%
• D) 21.21%
• E) 28.00%

Recognize the impact of leadership styles on organizational and group dynamics.

Grasp the negative effects of excessive adherence to bureaucratic norms.

Understand the concepts of expansionary and recessionary gaps within an economy.

Comprehend how self-correction mechanisms work in adjusting an economy towards its potential output.

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Definitions:

Unlevered Cost

The cost of financing a project or investment without any debt.

Debt/Equity Ratio

This ratio signals the proportionate financing of company assets by means of shareholders' equity and debt.

Borrow

The act of receiving money, goods, or services from a lender or institution under an agreement to return or repay it in the future.

Stock Price

The cost of purchasing a single share of a particular stock on the stock market.