Determine the annual financing cost of a 6-month (182-day) 20,000 discounted bank loan at a stated annual interest rate of 10 percent. Assume that no compensating balance is required.

10.52%

Explanation:

The computation of the annual financing cost is shown below:

First we have to calculate the interest cost that is shown below:

= $20,000 * 10% * 182 days : 365 days

= $997.26

Now the used funds is

= $20,000 - $997.26

= $19,003

Now the annual financing cost is

= ($997 : $19,003) * (365 days : 182 days)

= 10.52%

We assume there are 365 days in a year