1. Bravo Corporation recently issued 270-day commercial paper with a face value of $2,000,000 and a simple interest rate of 11 percent. The company paid a transaction fee equal to 0.4 percent of the issue, which was taken out of the issue amount before the company received any funds.
Assuming there are 360 days in a year, what is the commercial paper's effective annual rate (rEAR)? (Round your answer to two decimal places.)
2. Kerry Corporation is planning to get a 270-day $500,000 simple interest loan from its bank at a quoted interest rate of 12 percent. If the bank has a 20% compensating balance requirement and Kerry currently holds no funds at the lending bank, what is the effective annual rate (EAR) of the loan? (Assume there are 360 days in a year. Round your answer to two decimal places.)?
3. A revolving credit agreement is:
created because of recurring short-term liabilities such as wages and taxes that change spontaneously with operations.
the credit created when one firm buys on credit from another firm.
an outright sale of receivables.
an unsecured, short-term promissory note issued by large, financially sound firms to raise funds.
a formal, committed arrangement in which a bank agrees to lend up to a specified maximum amount of funds during a designated period.