You Have Just Taken Out a Loan for $75,000

question 12

Multiple Choice

You have just taken out a loan for $75,000. The stated (simple) interest rate on this loan is 10 percent, and the bank requires you to maintain a compensating balance equal to 15 percent of the initial face amount of the loan. You currently have $20,000 in your checking account, and you plan to maintain this balance. The loan is an add-on installment loan which you will repay in 12 equal monthly installments, beginning at the end of the first month.
-Suppose you borrow $2,000 from a bank for one year at a stated annual interest rate of 14 percent, with interest prepaid (a discounted loan) . Also, assume that the bank requires you to maintain a compensating balance equal to 20 percent of the initial loan value. What effective annual interest rate are you being charged?

• A) 14.00%
• B) 8.57%
• C) 16.28%
• D) 21.21%
• E) 28.00%

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Definitions:

Photosynthetic Bacteria

Bacteria that are capable of photosynthesis, a process that converts light energy into chemical energy, often playing a key role in various ecosystems by producing organic compounds.

Eukaryotic Cell

Cells with a nucleus enclosed within membranes and various organelles compartmentalized into distinct structures.

Genomes

The complete set of genetic material, including all of its genes, present in an organism or a cell.