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Line of Credit with Given Interest and Compensating Balance Rate

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My company has a line of credit with a stated interest rate of 10% and compensating balance of 25% and the compensating balance earns no interest.

If my company needs $10,000, how much will I need to borrow? And if the bank offers to forget about the compensating balance requirement if my company pays interest at rate of 12%, should I accept an offer and why?

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Solution Summary

This solution discusses a line of credit and interest rates.

Solution provided by:
Manal Elkhoshkhany, MBA
Education
  • BA, Ain Shams University, Cairo Egypt
  • MBA, California State University, Sacramento
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