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A Firm Borrows $100,000 from the Bank, but Has to Maintain

question 74

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A firm borrows $100,000 from the bank, but has to maintain a compensating balance of $20,000 with the bank.The annual interest rate for the loan is 12%.What is the effective annual rate if the interest is compounded semi-annually?


Definitions:

S Corporations

A type of corporation in the United States that allows profits, and some losses, to be passed directly to owners' personal income without being subject to corporate tax rates.

Limited Liability Companies

Business entities that offer their owners limited personal liability for the debts and actions of the company while enabling profit distributions.

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