Financial Management of Grains Plus Free-Samples for Studetns

Questions: 1.If Interest and Principle are all repaid at the end of the three-month loan term, what is the annual Percentage rate on the Loan offer make by the Bank? 2.If the Bank were to offer to lower the rate to the Reserve Bank of Australia cash rate if Interest is Discounted, should you accept this alternative? Answers: According to the given information, Grains plus ltd required a loan of $240,000 for three months period and so they approached to bank. Bank has granted a loan at the rate of 4% over and above 1% of Reserve Bank of Australia cash rate to Grain Plus Ltd. However, Bank has also put a condition on Grain Plus Ltd to hold at least 20% of loan amount in its current bank account. 1.Computation of annual percentage rate on loan amount: Particulars Amount in $ Funds Required (a) 2,40,000 Reserve bank interest rate (1%) (RBA) 3.00% Interest rate offered by Bank [1% + 3%] 4.00% Minimum Balance required in bank ($ 2, 40,000 * 20%) 48,000 Current balance in bank (given) 4,000 Additional Funds Required ($48,000 - $4,000) (b) 44,000 Total funds required (a + b) 2,84,000 Interest charged by banks for 3 months ($2,84,000 * 4% * 3/12) 2,840 Annual Percentage Rate ($2,840/$2,40,000*12/3*100) 4.73% 2.Cash rate means an interest rate set by reserve bank of Australia that will charged on borrowings between banks (RBA, 2017). In the given situation, if the bank offers lower interest rate than RBA rate then the company should accept this alternative because it that case company could invest its unused funds in other risk free funds as well and earn higher returns on it. This alternative would surely benefit the Grains plus limited in their earnings. Reference: Reserve Bank of Australia. (2017). Cash rate. Retrieved on 18 April 2017 from https://www.rba.gov.au/statistics/cash-rate/.