Scan Bookkeeping has a $200,000 compensating balance loan with its bank.The terms of the loan call for Scan to keep 5% of the loan as a compensating balance and pay interest at an annual rate of 6.50% 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 interest is calculated on the entire loan amount of $200,000 at a rate of 6.50%. Therefore, the interest due at the end of the year is $200,000 * 6.50% = $13,000. The compensating balance does not affect the interest calculation.

Scan Bookkeeping Has a $200,000 Compensating Balance Loan with Its