1. Holland Construction Co. has an outstanding 180-day bank loan of $400,000 at an annual interest rate of 9.5%. The company is required to maintain a 15% compensating balance in its checking account. What is the effective interest rate on the loan? Assume the company would not normally maintain this average amount.© BrainMass Inc. brainmass.com December 20, 2018, 5:57 am ad1c9bdddf
Effective interest rate = Interest paid/Actual amount used
The solution explains how to calculate the effective interest rate on the loan.