Problem: Maximum Bank has analyzed the accounts receivable of Scientific Software, Inc. The bank has chosen eight accounts totaling $134,000 that it will accept as collateral. The bank's ters include a lending rate set at prime plus 3% and a 2% commission charge. The prime rate currently is 8.5%.
1) The bank will adjust the accounts by 10% for returns and allowances. It will then lend up 85% of the adjusted acceptable collateral. What is the maximum amount that the bank will lend to Scientific Software?
2) What is Scientific Software's effective annual rate of interest if it borrows $100.000 for 12 months? For 3 months? (Assume a 365-day year and prime rate that remains at 8.55 during the life of the loan.)