Business Financing Annual Rates
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7. Bank A offers loans with a 10% stated annual rate and a 10% compensating balance. You wish to obtain $250,000 in a six month loan.
a. How much must you borrow to obtain $250,000 in usable funds? Assume you currently do not have any funds on deposit at the bank. What is the effective annual rate on a six month loan?
b. How much must you borrow to obtain $250,000 in usable funds if you currently have $10,000 on deposit at the bank? What is the effective annual rate on a six-month loan?
c. How much must you borrow to obtain $250,000 in usable funds if you currently have $30,000 on deposit at the bank?
d. What is the effective annual rate on a six-month loan?
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Solution Summary
Determine the cost of obtaining a bank loan with a compensating balance.
Education
- MBA, Merage School of Business, Univ of Cal, Irvine
- BA, Univ of Cal, Irvine
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