Question

Your firm is considering the following three alternative bank loans for $1,000,000:

a) 10 percent loan paid at year end with no compensating balance
b) 9 percent loan paid at year end with a 20 percent compensating balance
c) 6 percent loan that is discounted with a 20 percent compensating balance requirement

Assume that you would normally not carry any bank balance that would meet the 20 percent compensating balance requirement. What is the rate of annual interest on each loan?

Answer 1

$200.00