Crenshaw Inc

question 33

Essay

Crenshaw Inc.has a $400,000 line of credit with a local bank.The bank requires a compensating balance of 10% of the loan and extends credit to Crenshaw at 1% over the current prime rate.Crenshaw needs the use of $200,000 for the three-month period.They currently have no deposits with the lending bank.
a.What will the effective annual cost of this credit be? (Assume a 360-day year and a 9% prime rate.)
b.Using the above information,what would be the effective interest rate if the firm discounted the interest on the loan?

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Definitions:

Mobility

The ability to move freely and easily, often referring to social mobility, which is the movement of individuals or groups in social position over time.

Technology

The application of scientific knowledge for practical purposes, especially in industry, where it involves the machinery and equipment developed from such scientific knowledge.

Government

An organized group of people that governs a community, region, or country, often responsible for creating and enforcing laws, policies, and managing public services.

Economic Forces

Factors that influence the direction of economic activities and trends, such as supply and demand, inflation, and employment levels.