Compensating balance and effective annual rate
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P15-9
Effective annual rate
A financial institution made a $10,000, 1-year discount loan at 10% interest, requiring a compensating balance equal to 20% of the face value of the loan. Determine the effective annual rate associated with this loan. (Note: Assume that the firm currently maintains $0 on deposit in the financial institution.)
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This provided the steps to compute the effective annual rate under compensating balance requirements
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With a compensating balance requirement of 20 percent the effective annual ...
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