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# All Calculations Used to Arrive at Solutions Essay

1. Community Hospital has one-year net patient grosss of \$ 150 million. At the present clip. payments received by the infirmary are non deposited for six yearss on norm. The infirmary is researching a safe-deposit agreement that promises to cut the six yearss to one twenty-four hours. If these financess released by the safe-deposit agreement can be invested at 8 per centum. what will the one-year nest eggs be? Assume the bank fee will be \$ 2. 000 per month.

2. St. Luke’s Convalescent Center has \$ 200. 000 in excess financess that it wishes to put in marketable securities. If dealing costs to purchase and sell the securities are \$ 2. 200 and the securities will be held for three months. what required one-year output must be earned before the investing makes economic sense?

3. Your house is sing the undermentioned three alternate bank loans for \$ 1. 000. 000:

a ) 10 per centum loan paid at twelvemonth terminal with no counterbalancing balance B ) 9 per centum loan paid at twelvemonth terminal with a 20 per centum counterbalancing balance degree Celsius ) 6 per centum loan that is discounted with a 20 per centum counterbalancing balance demand

Assume that you would usually non transport any bank balance that would run into the 20 per centum counterbalancing balance demand. What is the rate of one-year involvement on each loan?

4. An of import beginning of impermanent hard currency is trade recognition. which does non really convey in hard currency. but alternatively slows its escape. Sellers frequently provide price reductions for early payment. What is the expression to find the effectual involvement rate if the price reduction is non utilized?

1. Community Hospital has one-year net patient grosss of \$ 150 million. At the present clip. payments received by the infirmary are non deposited for six
yearss on norm. The infirmary is researching a safe-deposit agreement that promises to cut the six yearss to one twenty-four hours. If these financess released by the safe-deposit agreement can be invested at 8 per centum. what will the one-year nest eggs be? Assume the bank fee will be \$ 2. 000 per month. Annual net patient gross = \$ 150 million

Lockbox agreement will gain involvement for 5 yearss
( As payment received by the infirmary are non deposited for 6 yearss. Lock box agreement will cut the 6 yearss to 1 twenty-four hours ) . Interest rate = 8 %
Bank fee = \$ 2. 000 per month
So. involvement earned = \$ 150 million * ( 5/365 ) *8 % = \$ 164. 384
Annual bank fee = \$ 2000*12 = \$ 24. 000
Hence. one-year nest eggs = \$ 164. 384 – \$ 24. 000 = \$ 140. 384
2. St. Luke’s Convalescent Center has \$ 200. 000 in excess financess that it wishes to put in marketable securities. If dealing costs to purchase and sell the securities are \$ 2. 200 and the securities will be held for three months. what required one-year output must be earned before the investing makes economic sense? Surplus fund = \$ 200. 000

Transaction cost = \$ 2. 200
Keeping period = 3 months
So. output should be minimal \$ 2. 200.
Let lower limit required one-year output = R %
So. \$ 200. 000* ( 3/12 ) *r % = \$ 2. 200
50. 000*r % = 2. 200
R % = 2. 200/50. 000 = 4. 40 %
Therefore. lower limit needed one-year output = 4. 40 %

3. Your house is sing the undermentioned three alternate bank loans for \$ 1. 000. 000:

Assume that you would usually non transport any bank balance that would run into the 20 per centum counterbalancing balance demand. What is the rate of one-year involvement on each loan? a ) 10 per centum loan paid at twelvemonth terminal with no counterbalancing balance Annual involvement rate = 10 %

B ) 9 per centum loan paid at twelvemonth terminal with a 20 per centum counterbalancing balance Annual involvement rate = 9 % / ( 1-20 % ) = 11. 25 %

degree Celsius ) 6 per centum loan that is discounted with a 20 per centum counterbalancing balance demand Annual involvement rate = 6 % / [ ( 1-6 % ) * ( 1-20 % ) ] = 7. 98 %

4. An of import beginning of impermanent hard currency is trade recognition. which does non really convey in hard currency. but alternatively slows its escape. Sellers frequently provide price reductions for early payment. What is the expression to find the effectual involvement rate if the price reduction is non utilized? Effective involvement rate if price reduction is non utilised =

[ Discount % / ( 1-Discount % ) ] x ( 360/ ( Full allowed payment yearss – Discount yearss ) ) Example: Let recognition term is 2/10. n/30
Then effectual involvement rate if price reduction is non utilised =
2 % / ( 1-2 % ) * ( 360/ ( 30-10 ) ) = 36. 73 %