(Solved Homework): Short-Term Financing Questions…

Short-Term Financing Questions

1) Calculate the Interest, Commitment Fees, and EAR on the following credit line:
– $500,000 credit line
– 12% interest rate
– $200,000 borrowed on average for year
– 1.0% commitment fee

Don't use plagiarized sources. Get Your Custom Essay on
(Solved Homework): Short-Term Financing Questions…
Get an essay WRITTEN FOR YOU, Plagiarism free, and by an EXPERT!
Order Essay

2) TTDS is offered a $750,000 loan for nine months at an APR of 8%. This loan has a loan origination fee of 2%. What is the EAR on the loan?

3) TTDS is offered a $1,000,000 loan for six months at an APR of 9%. This loan requires TTDS to keep 20% of the loan principal in a non-interest-bearing account with the bank as a compensating balance. What is the EAR on the loan?

4) A firm has a $4 million credit line to borrow at the prime rate (9%). Terms require a 10% compensating balance on borrowed funds and a 0.5% commitment fee on the unused balance. Average borrowings during the year are expected to be $2 million. The firm has $100,000 on deposit at the bank. Calculate the EAR.

5) A firm issues nine-month commercial paper with a $50,000 face value and receives $45,000. What effective annual rate (EAR) is the firm paying for its funds?

Expert Answer



Calculate the Interest = Used credit line * Interest rate

= $200,000 * 0.12

= $24,000

Commitment fees = Unused credit line * Commitment rate

= ($500,000 – $200,000) *0.01

= $3,000

Calculation of EAR = (Interest + Commitment fees / Used Credit line) *100

= ($24,000 + $3,000 / $200,000) *100

= 13.50%

Note = As sum provide average borrowing I have used annual rate directly.


The Loan = $ 750000

APR = 8%

Interest = 750000*8%*9/12 = $45,000

Loan originating fee = 750000*2%= $15,000

Total cost of loan = 45000+15000 = 60000

EAR on loan = (60000/750000)*12/9 = 10.67%


Calculate the Total Amount to be Paid Back

The total amount to be paid on the loan will be calculated as follows:

Total Amount to be Paid Back = Loan Amount*(1+APR/2) – Compensating Balance Percentage*Loan Amount

Using the information provided in the question, we get,

Total Amount to be Paid Back = 1,000,000*(1+9%/2) – 1,000,000*20% = $845,000

Calculate EAR

The 6 month rate can be calculated as follows:

6 Month Rate = Total Amount to be Paid Back/Amount of Loan after Adjustment for Compensating Balance – 1

= (845,000/(1,000,000 – 20%*1,000,000)) – 1 = 5.625%

The EAR is calculated with the use of following formula:

EAR = (1+6 Month Rate)^(n) – 1 = (1+5.625%)^2 – 1 = 11.57%






Calculation of Effective Annual Rate (EAR)

Face Value = $50000

Present Value = $45000

n = 1

Interest Rate = 11.11% ( Rate (1,0,-45000,50000)

Effective Annual Rate = (1+Rate)^n -1

= ((1+11.11%)^1)-1

= 11.11%

where n is the number of 9 month periods in a year

Homework Ocean
Calculate your paper price
Pages (550 words)
Approximate price: -

Why Work with Us

Top Quality and Well-Researched Papers

We always make sure that writers follow all your instructions precisely. You can choose your academic level: high school, college/university or professional, and we will assign a writer who has a respective degree.

Professional and Experienced Academic Writers

We have a team of professional writers with experience in academic and business writing. Many are native speakers and able to perform any task for which you need help.

Free Unlimited Revisions

If you think we missed something, send your order for a free revision. You have 10 days to submit the order for review after you have received the final document. You can do this yourself after logging into your personal account or by contacting our support.

Prompt Delivery and 100% Money-Back-Guarantee

All papers are always delivered on time. In case we need more time to master your paper, we may contact you regarding the deadline extension. In case you cannot provide us with more time, a 100% refund is guaranteed.

Original & Confidential

We use several writing tools checks to ensure that all documents you receive are free from plagiarism. Our editors carefully review all quotations in the text. We also promise maximum confidentiality in all of our services.

24/7 Customer Support

Our support agents are available 24 hours a day 7 days a week and committed to providing you with the best customer experience. Get in touch whenever you need any assistance.

Try it now!

Calculate the price of your order

Total price:

How it works?

Follow these simple steps to get your paper done

Place your order

Fill in the order form and provide all details of your assignment.

Proceed with the payment

Choose the payment system that suits you most.

Receive the final file

Once your paper is ready, we will email it to you.

Our Services

No need to work on your paper at night. Sleep tight, we will cover your back. We offer all kinds of writing services.


Essay Writing Service

No matter what kind of academic paper you need and how urgent you need it, you are welcome to choose your academic level and the type of your paper at an affordable price. We take care of all your paper needs and give a 24/7 customer care support system.


Admission Essays & Business Writing Help

An admission essay is an essay or other written statement by a candidate, often a potential student enrolling in a college, university, or graduate school. You can be rest assurred that through our service we will write the best admission essay for you.


Editing Support

Our academic writers and editors make the necessary changes to your paper so that it is polished. We also format your document by correctly quoting the sources and creating reference lists in the formats APA, Harvard, MLA, Chicago / Turabian.


Revision Support

If you think your paper could be improved, you can request a review. In this case, your paper will be checked by the writer or assigned to an editor. You can use this option as many times as you see fit. This is free because we want you to be completely satisfied with the service offered.

× Contact Live Agents