Come and Go Bank offers your firm a discount interest loan with an interest rate
ID: 2646535 • Letter: C
Question
Come and Go Bank offers your firm a discount interest loan with an interest rate of 8 percent for up to $24 million, and in addition requires you to maintain a 1 percent compensating balance against the face amount borrowed.
What is the effective annual interest rate on this lending arrangement? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)
Required:What is the effective annual interest rate on this lending arrangement? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)
Explanation / Answer
Compensating balance would be 1% of 24 million = 240,000
Effective annual interest rate would be =
[interest rate (on loan) x principal)] / principal