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Cost of bank loan

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15.9 Cost of bank loan Data Back-Up Systems has obtained a $10,000, 90-day bank
loan at an annual interest rate of 15%, payable at maturity. (Note: Assume a 365-day year.)

a. How much interest (in dollars) will the firm pay on the 90-day loan?

b. Find the effective 90-day rate on the loan.

c. Annualize your result in part b to find the effective annual rate for this loan,
assuming that it is rolled over every 90 days throughout the year under the same
terms and circumstances.

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Solution Summary

The solution explains how to calculate the dollar interest paid on the loan and its effective rate.

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a. Using the simple interest formula
Interest for 90 days = 10,000 X 15% X 90/365 = $369.86

b. The effective ...

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