Compensation Balances Revenues
Not what you're looking for?
Tom Sander is a loan officer with Miami National Bank. The bank typically charges 8% APR on loans with a compensating balance requirement of 10%. In order to be competitive with other banks, Sanders will adjust the loan rate based on a customer's compensating balance level. A customer maintaining a balance greater than 10% will get a lower interest rate and customer with a balance lower than 10% will get a higher rate.
a) What is the effective interest rate on the typical loan with a nominal 8% interest rate and a 10% compensating balance?
b) Collins construction would supply compensating balances of 150,000 and would like to borrow 2,000,000. What nominal interest rate should Sanders charge on the Collins loan in order to realize the same effective interest rate as the "typical" loan in part a?
c) Dussold Distributors would provide compensating balances of $200,000 and would like to borrow $1,000,000. What nominal interest rate should Sanders charge on the Dussold loan in order to realize the same effective interest rate as the "typical" loan in part a?
Purchase this Solution
Solution Summary
Compensation balance revenues are examined. The effective interest rate is determined.
Purchase this Solution
Free BrainMass Quizzes
MS Word 2010-Tricky Features
These questions are based on features of the previous word versions that were easy to figure out, but now seem more hidden to me.
Paradigms and Frameworks of Management Research
This quiz evaluates your understanding of the paradigm-based and epistimological frameworks of research. It is intended for advanced students.
Cost Concepts: Analyzing Costs in Managerial Accounting
This quiz gives students the opportunity to assess their knowledge of cost concepts used in managerial accounting such as opportunity costs, marginal costs, relevant costs and the benefits and relationships that derive from them.
Employee Orientation
Test your knowledge of employee orientation with this fun and informative quiz. This quiz is meant for beginner and advanced students as well as professionals already working in the HR field.
Situational Leadership
This quiz will help you better understand Situational Leadership and its theories.