In Order to Finance a Shipment of Badminton Sets, Rujisawa

question 84

Essay

In order to finance a shipment of badminton sets, Rujisawa Import-Export is seeking a $500,000 one-year bank loan. The Marine Bank requires that Rujisawa maintain a 20% compensating balance and requires four quarterly payments. The Prairie Bank requires only a 10% compensating balance, but requires 12 monthly payments. In addition, the Prairie Bank discounts the loan. Both banks state that their interest rate is 9%.
A) Which bank has the lowest annual interest rate? (NOTE: deduct the compensating balances from the principal in determining the annual rate.)
B) If Prairie Bank eliminated its compensating-balance requirement, would your answer change?

• A) Which bank has the lowest annual interest rate? (NOTE: deduct the compensating balances from the principal in determining the annual rate.)
• B) If Prairie Bank eliminated its compensating-balance requirement, would your answer change?

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Definitions:

Savior Complex

A psychological construct where an individual believes they are responsible for saving others, often at the expense of their own needs.

Discounting

In psychology, a cognitive bias where an individual minimizes the significance or worth of an event or object.

Mutual Appreciation

A reciprocal recognition and respect for the value and qualities of another person or group.

Preschool Teachers

Educators specialized in early childhood development who instruct and care for children aged three to five years old.