Mathematics - Other
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Carey Company is borrowing $200,000 for one year at 12 percent from Second Intrastate Bank. The bank requires a 20 percent compensating balance. What is the effective rate for interest? What would the effective rate be if Carey were required to make 12 equal monthly payments to retire the loan? (Amount borrowed - Compensating balance).
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Solution Summary
A complete, neat and step-by-step solution is provided determining the amount borrowed minus the compensating rate to arrive at the effective rate for interest.
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Compensating balance = 20% of 200000 = $40000
Usable principal amount = 200000 ?40000 = $160000
Interest on 200000 ...
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