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21 August, 05:32

Determine the annual financing cost of a 6-month (182-day) 20,000 discounted bank loan at a stated annual interest rate of 10 percent. Assume that no compensating balance is required.

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  1. 21 August, 06:38
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    10.52%

    Explanation:

    The computation of the annual financing cost is shown below:

    First we have to calculate the interest cost that is shown below:

    = $20,000 * 10% * 182 days : 365 days

    = $997.26

    Now the used funds is

    = $20,000 - $997.26

    = $19,003

    Now the annual financing cost is

    = ($997 : $19,003) * (365 days : 182 days)

    = 10.52%

    We assume there are 365 days in a year
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