Idaho Mining,Inc borrows at prime plus 1.5% on its line of credit.The line requires a 15% compensating balance.If prime rate is 9%,what is the nominal APR of the line of credit?

Question

Quizplus · Accepted Answer

The nominal APR is calculated by adding the prime rate (9%) to the additional percentage (1.5%), resulting in 10.5%. However, due to the 15% compensating balance requirement, the effective borrowing amount is reduced, increasing the effective interest rate. The nominal APR is calculated as (10.5% / (1 - 0.15)) = 12.35%, which rounds to 12.4%.

Idaho Mining,Inc Borrows at Prime Plus 1