**Spreadsheet Exercise**

hey Doc, let me know if you ahve any questions

Your company is considering manufacturing protective cases for a popular new smart-phone. Management decides to borrow $200,000 from each of two banks, First American and First Citizen. On the day that you visit both banks, the quoted prime interest rate is 7%. Each loan is similar in that each involves a 60-day note, with interest to be paid at the end of 60 days.

The interest rate was set at 2% above the prime rate on First Americanâ€™s fixed-rate note. Over the 60-day period, the rate of interest on this note will remain at the 2% premium over the prime rate regardless of fluctuations in the prime rate.

First Citizen sets its interest rate at 1.5% above the prime rate on its floating-rate note. The rate charged over the 60 days will vary directly with the prime rate.

**TO DO**

Create a spreadsheet to calculate and analyze the following for the First American loan:

**a.**Calculate the total dollar interest cost on the loan. Assume a 365-day year.**b.**Calculate the 60-day rate on the loan.**c.**Assume that the loan is rolled over each 60 days throughout the year under identical conditions and terms. Calculate the effective annual rate of interest on the fixed-rate, 60-day First American note.

Next, create a spreadsheet to calculate the following for the First Citizen loan:

**d.**Calculate the initial interest rate.**e.**Assuming that the prime rate immediately jumps to 7.5% and after 30 days it drops to 7.25%, calculate the interest rate for the first 30 days and the second 30 days of the loan.**f.**Calculate the total dollar interest cost.**g.**Calculate the 60-day rate of interest.**h.**Assume that the loan is rolled over each 60 days throughout the year under the same conditions and terms. Calculate the effective annual rate of interest.**i.**Which loan would you choose, and why?

The post for Dr.Loizeaux only appeared first on Lion Essays.

for Dr.Loizeaux only was first posted on May 12, 2023 at 7:01 am.

©2019 "Lion Essays". Use of this feed is for personal non-commercial use only. If you are not reading this article in your feed reader, then the site is guilty of copyright infringement. Please contact me at admin@queensresearch.com