The Atlantic Group has a $300,000 compensating balance loan with its bank.The terms of the loan call for Atlantic to keep 8% of the loan as a compensating balance and pay interest at an annual rate of 5.50% on the entire amount.If the firm borrows the maximum amount for one year,how much interest is due at the end of the year?

Question

Quizplus · Accepted Answer

The amount of the loan is $300,000, and 8% of this amount is held as a compensating balance, which means only $276,000 is actually available for use. Atlantic pays annual interest of 5.50% on the entire amount, which is $16,275 per year. Therefore, the total interest due at the end of the year would be $16,275.

The Atlantic Group Has a $300,000 Compensating Balance Loan with Its