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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.

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

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