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

question 67

Multiple Choice

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?

• A)12.03%
• B)13.00%
• C)14.05%
• D)15.56% Effective Annual Rate with Compensating Balances =

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