Question

Gibraltar Construction was granted a 1-year construction loan of $650,000 to finance the construction of an apartment complex. Gibraltar borrowed the money from Citizens Trust at an interest rate of 0.75% ordinary interest over the prime rate. What was the maturity value of the loan if the prime rate is 8.75%?

Answer 1

Given:
loan: 650,000
prime rate: 8.75%
interest rate of 0.75% ordinary interest over the prime rate

Interest rate: 8.75% + 0.75% = 9.5%

650,000 x 9.5% x 1 =  61,750 interest

maturity value: 650,000 + 61,750 = 711,750