Barkely's Has a Line of Credit with a Local Bank

question 141

Multiple Choice

Barkely's has a line of credit with a local bank in the amount of $125,000. The loan agreement calls for interest of 8% with a compensating balance of 4%, which is based on the total amount borrowed. The compensating balance will be deposited into an interest-free account. What is the effective interest rate on the loan if the firm needs to borrow $58,000 for one year to cover operating expenses?

• A) 7.68%
• B) 7.81%
• C) 8.00%
• D) 8.17%
• E) 8.33%

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Definitions:

State Theory

State theory involves the study and analysis of the state, including its origin, nature, functions, and the role it plays in society and international relations.

Civilization

An advanced state of human society marked by developed forms of government, culture, industry, and social norms, often associated with settled urban communities.

Irrigation Systems

Engineered networks designed to transport water to support agriculture in areas where rainwater supply is insufficient or erratic.

Early Civilization

Highly developed societies that emerged in various parts of the world, characterized by urban development, social stratification, formative government structures, and the development of writing and art.