What Is the Effective Interest Rate on a 12% Loan

question 137

Multiple Choice

What is the effective interest rate on a 12% loan that requires a 10 percent minimum compensating balance?

• A)13.33 percent
• B)14.44 percent
• C)15.50 percent
• D)16.00 percent

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Definitions:

Operating Activities

The day-to-day actions that are involved in running a business, such as buying, selling, and producing goods or services.

Indirect Method

A way of preparing the statement of cash flows where net income is adjusted for changes in balance sheet accounts to calculate the cash from operating activities.

Operating

Refers to the day-to-day activities involved in running a business that are essential for generating revenue.

Financing

The process of providing funds for business activities, making purchases, or investing, including obtaining loans or issuing stocks.