Explore BrainMass

# Interest rate

This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

Permanent assets financing
Bingo Corporation is determining whether to support \$150,000 of its permanent current assets with a bank note or a short-term bond. The firm's bank offers a two-year note where the firm will receive \$150,000 and repay \$175,000 at the end of two years. The firm has the option to renew the loan at market rates. Alternatively, Bingo can sell 8.5 percent coupon bonds with a 2-year maturity and \$1,000 par value at a price of \$973.97. How many percentage points lower is the interest rate on the less expensive debt instrument?

#### Solution Preview

We calculate the interest rate on the two options -
1. Bank Note - Here we borrow \$150,000 and repay \$175,000 at the end of 2 years. Using the compound interest formula
175,000 = ...

#### Solution Summary

The solution explains how to determine the interest rates on different borrowing alternatives

\$2.19