Gripp Corporation is planning to borrow $780,000 from its bank to pay one of its suppliers. The bank requires a compensating balance of 15%. Since Gripp currently holds no funds at the lending bank, it has borrowed enough to cover for the compensating balance as well. To pay its suppliers, Gripp actually needs:

Question

Quizplus · Accepted Answer

The compensating balance is 15% of $780,000, which is $117,000. So, Gripp actually needs to borrow $780,000 + $117,000 = $897,000. To pay its suppliers, Gripp actually needs $897,000 - $117,000 = $780,000.

Gripp Corporation Is Planning to Borrow $780,000 from Its Bank