Company A has a loan agreement under which it can borrow at a rate of 1.50% p.a. above the BKBM. Suppose the six-month BKBM rate is 2.50% p.a., and that the company borrows $10,000,000. What is the effective interest rate and the amount of interest that will be due in six months time?

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First, identify the components of the loan's interest rate: the base BKBM rate plus the additional margin. The six-month BKBMRate given is 2.50% p.a., and the loan carries a margin of 1.50% p.a. above BKBM. Combining these yields an effective interest rate of 2.50% + 1.50% = 4.00% per year (p.a.).

Next, determine the amount of interest due in six months on the borrowed principal of $10,000,000. Since the rate is annual, the six-month period corresponds to half a year. The interest for six months is calculated as: Principal × Annual rate × (months / 12) = 10,000,000 × 0.04 × (6/12) = 10,000,000 × 0.04 × 0.5 = 10,000,000 × 0.02 = 200,000.

Therefore, the effective interest rate is 4% per year, and the interest due in six months is $200,000. Note that if there were any additional fees or compounding considerations not specified, those could alter the total amount due, but with the information given, the calculation above is correct.

BUSINESS 114 BUS114 Module 04: Pre-workshop quiz (Sources of Finance)

Company A has a loan agreement under which it can borrow at a rate of 1.50% p.a. above the BKBM. Suppose the six-month BKBM rate is 2.50% p.a., and that the company borrows $10,000,000. What is the effective interest rate and the amount of interest that will be due in six months time?

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BUSINESS 114 BUS114 Module 04: Pre-workshop quiz (Sources of Finance)

Company A has a loan agreement under which it can borrow at a rate of 1.50% p.a. above the BKBM. Suppose the six-month BKBM rate is 2.50% p.a., and that the company borrows $10,000,000. What is the effective interest rate and the amount of interest that will be due in six months time?

View Explanation

Log in for full answers

Similar Questions

A customer of a bank has $275,000 in surplus funds that need to be invested for a short period of time. The bank offers to sell a 90-day negotiable certificate of deposit (CD) to the customer at a yield of 6.45 per cent per annum. Advise the customer of the dollar return on the CD.

A bank, in a 365-day year country, accepts a $2m deposit to mature in 270 days and will pay 2.33% p.a. on the deposit. How much interest will it pay?

Interest on a savings account is calculated at 0.3% per month based on the minimum monthly balance. The following statement lists all the transactions on an account for January–March one year. The interest, in dollars, for the month of February is:

Interest on a savings account is calculated at 0.3% per month based on the minimum monthly balance. The following statement lists all the transactions on an account for January–March one year. The interest, in dollars, for the month of February is:

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