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net effective interest rate
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Annual Report
Quarterly Reports
5-Year Summary
Patronage and
Interest Rates
Financial News
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Financial and Economic
Publications
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One method of measuring the benefit of patronage refunds and the capital plan is
by computing the net effective interest rate.
The following example can help explain how patronage reduces your
effective interest rate. The illustration assumes a new
$1 million loan at 7%, patronage
refunds of 1.00% of loans, to be distributed 65% in cash and 35% in stock and an
11-year
retirement cycle.
Net Effective Interest Rate Reduction
| Interest cost |
$70,000 |
| Equity purchase |
0 |
| Cash patronage |
(6,500) |
| Net cash flow |
$63,500 |
Less present value of retirement of:
| Equity patronage |
1,663 |
| Net interest cost |
$61,837 |
| Net effective interest rate |
6.18% |
| Net effective interest rate reduction |
.82% |
(Present value calculated using 7.00 percent loan rate.)
The effective interest rate on the CoBank loan, when patronage and the present value of
future retirements are netted against interest cost, is reduced by 82 basis points, or
0.82% below the stated rate.
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