Grant Technologies needs $300,000 to pay its supplier. Grant's bank is offering a 210-day simple interest loan with a quoted interest rate of 11 percent and a 20 percent compensating balance requirement. Assuming there are 360 days in a year and Grant currently holds no funds at the lending bank, what is the annual percentage rate (APR) of the loan?

Question

Quizplus · Accepted Answer

To calculate the APR, first determine the actual loan amount Grant can use: $300,000 / (1 - 0.20) = $375,000. The interest for 210 days is $375,000 * 0.11 * (210/360) = $24,062.50. The APR is then ($24,062.50 / $300,000) * (360/210) = 13.75%.

Grant Technologies Needs $300,000 to Pay Its Supplier