Consolidated Corporation requires C$50 million in funds. The bank has offered them a discounted loan at 8% with a compensating balance of 15%. How much must they borrow in order to net this amount?

Question

Quizplus · Accepted Answer

To net C$50 million with a compensating balance of 15%, they must borrow more than C$50 million. The formula is: Required funds / (1 - compensating balance rate). So, 50,000,000 / (1 - 0.15) = 58,823,529.41. Then, account for the discount: 58,823,529.41 / (1 - 0.08) = 64,935,165.

Consolidated Corporation Requires C$50 Million in Funds