In Order to Finance a Shipment of Badminton Sets, Rujisawa

question 54

Essay

In order to finance a shipment of badminton sets, Rujisawa Import-Export is seeking a $700,000 one-year bank loan. The Marine Bank requires that Rujisawa maintain a 25% compensating balance and requires four quarterly payments. The Lincoln Bank requires only a 15% compensating balance, but requires 12 monthly payments. In addition, Lincoln discounts the loan. Both banks state that their interest rate is 8%.
a) Which bank has the lowest effective interest rate?
(NOTE: deduct the compensating balances from the principal in determining the effective rate)
b) If Lincoln Bank eliminated its compensating-balance requirement, would your answer change?

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Definitions:

Schizophrenia

An emotional and cognitive ailment defined by alterations in thought patterns, interpretation of stimuli, feelings, and the ability to relate socially.

Parkinson's Disease

A progressive neurological disorder that affects movement, often including tremors and stiffness.

Dopamine

A neurotransmitter involved in many functions, including mood, sleep, learning, motivation, and the reward system, often associated with feelings of pleasure and satisfaction.

Endocrine System

The endocrine system is a network of glands in the body that produces and secretes hormones directly into the bloodstream to regulate bodily functions.