Your employer needs to borrow $550,000 to finance inventory for the upcoming seasonal rush.BIG Bank has offered to finance the inventory at 8% provided that your employer keeps a compensating balance in its operating account of 8%.How much must your employer borrow to end up with the $550,000?

Question

Quizplus · Accepted Answer

To end up with $550,000 after maintaining an 8% compensating balance, the employer must borrow more. The formula is: Amount needed / (1 - compensating balance rate) = $550,000 / (1 - 0.08) = $597,826.

Your Employer Needs to Borrow $550,000 to Finance Inventory for the Upcoming