What is the effective rate on an 8% loan subject to a 10% minimum compensating balance
A)10.0%
B)8.0%
C)8.89%
D)None of the above

Name: What is the effective rate on an 8% loan subject to a 10% minimum compensating balance A)10.0% B)8.0% C)8.89% D)None of the above
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Question

Quizplus · Accepted Answer

The effective rate formula with minimum compensating balance is:
Effective rate = (Interest paid / Loan proceeds) * (1 - minimum compensating balance)
= (8% / 0.9) * (1 - 0.1)
= 0.0889 or 8.89%

What Is the Effective Rate on an 8% Loan Subject