Current Liabilities Management
Bill payer has obtained hey short term loan from Jersey Bank and trust the 45,000 loan matures in 180 days Bill wants to use the money to cover start up expenditures for a new business he plans/hopes to have sufficient financing from other investors within the next six months in considering the $45,000 loan Jersey Bank and trust offers Bill two financing options
1) a fixed read loan had the prime rate Plus 2.5% or
2) hey 1.5% above prime variable rate loan currant the prime rate is 6.5% economists are forecasting the prime rate over the next one hundred and eighty days are as follows next 60 days the prime rate will rise by.5% after 90 days the prime rate rise another 1 % after 180 days the prime rate will drop buy 0.5%
Relying on the prime rate has forecasted answer the following
a) calculate the total interest cost over 180 days for a fixed rate loan
b) calculate the total interest costs over 180 days for a variable rate loan
c) which is the lower interest cost loan for the next 180 Days?