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Published byDestiny Gibbs Modified over 3 years ago

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Raising Funds How a business manages its finances is a key factor in whether or not that business succeeds. Where do businesses find the money to get started?

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Lesson Objective Determine the maturity value of a commercial loan. Content Vocabulary commercial loans Loans made to businesses rather than individuals, also known as business loans. maturity value prime rate maturity value The total amount you must repay for a loan. prime rate The lowest rate of interest available to commercial customers at a given time.

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Harms Drugstore borrowed $80,000 from First National Bank to pay for remodeling costs. The bank lent the money at 9 percent ordinary interest for 60 days. What is the maturity value of the loan? Example 1

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Find the interest owed. Principal × Rate × Time $80,000 × 9% × 60/360 = $1,200 Example 1 Answer: Step 1

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Find the maturity value. Principal + Interest Owed $80,000 + $1,200 = $81,200 Example 1 Answer: Step 2

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Key Words to Know prime rate (p. 689) The lowest rate of interest available for commercial loans at a given time.

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Keener Builders borrowed $180,000 from Farmers Bank to pay for materials and labor for a new building. Farmers Bank lent the money at 2 percent above the prime rate of 4.75 percent. The loan is ordinary interest for 90 days. What is the maturity value of the loan? Example 2

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Find the interest owed. Principal × Rate × Time $180,000 × (2.00% + 4.75%) × 90/360 = $180,000 × 6.75% × 90/360 = $3,037.50 Example 2 Answer: Step 1

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Find the maturity value. Principal + Interest Owed $180,000 + $3,037.50 = $183,037.50 Example 2 Answer: Step 2

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Inverse, Inc., borrowed $70,000 from a bank that charged 3.45 percent interest over prime on the loan. The term of the loan was 90 days. The prime rate is 6.85 percent. What was the maturity value of the loan? Practice 1

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$71,802.50 Practice 1 Answer

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Find the interest owed and the maturity value. $180,000 borrowed for 90 days Interest rate: 8.5 percent Practice 2

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Interest owed: $3,825 Maturity value: $183,825 Practice 2 Answer

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© 2014 Cengage Learning. All Rights Reserved. Learning Objectives © 2014 Cengage Learning. All Rights Reserved. LO1Identify available sources of debt financing.

© 2014 Cengage Learning. All Rights Reserved. Learning Objectives © 2014 Cengage Learning. All Rights Reserved. LO1Identify available sources of debt financing.

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