Consolidated Industries 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?
A) 9.0%
B) 6.0%
C) 10.6%
D) 12.4%

Question

Quizplus · Accepted Answer

The nominal APR is calculated by adjusting the interest rate for the compensating balance requirement. The effective interest rate is (9% + 1.5%) / (1 - 0.15) = 12.4%.

Consolidated Industries Borrows at Prime Plus 1