Calculating the Effective Interest Rate
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William Miklo is opening a new business and the bank will not give him a loan without a 20% compensating balance account. He needs $50,000 at 15% interest for one year and they want their interest in advance. What is the real interest rate they are charging him?
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Solution Summary
This solution illustrates how to compute the effective interest rate for a business loan with a compensating balance.
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Though the borrower is paying interest on a compensating balance, he or she does ...
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