Exhibit 22.1
Your brother has just taken out a loan for $75,000. The stated (simple) interest rate on this loan is 10 percent, and the bank requires him to maintain a compensating balance equal to 15 percent of the initial face amount of the loan. He currently has $20,000 in his checking account, and he plans to maintain this balance. The loan is an add-on installment loan which he will repay in 12 equal monthly installments, beginning at the end of the first month.
-Refer to Exhibit 22.1.What is the nominal annual add-on interest rate on this loan?

Question

Quizplus · Accepted Answer

The Answer of Exhibit 22.1
Your brother has just taken out a loan for $75,000. The stated (simple) interest rate on this loan is 10 percent, and the bank requires him to maintain a compensating balance equal to 15 percent of the initial face amount of the loan. He currently has $20,000 in his checking account, and he plans to maintain this balance. The loan is an add-on installment loan which he will repay in 12 equal monthly installments, beginning at the end of the first month.
-Refer to Exhibit 22.1.What is the nominal annual add-on interest rate on this loan?

Exhibit 22.1 Your Brother Has Just Taken Out a Loan for $75,000