P15-9 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.
The solution determines the cost of bank loan for Data Back-Up Systems.