Maggie's Bistro is borrowing $375,000. The loan requires an 8 percent compensating balance, and the effective interest rate on the loan is 10.326 percent. What is the stated APR on this loan? Do not round your intermediate calculations, and round your final percentage answer to two decimal places.

Question

Quizplus · Accepted Answer

To find the stated APR, we need to calculate the percentage of interest charged on the loan amount excluding the compensating balance.
Let X be the interest charged on the loan amount, then:
X = (Effective interest rate * Loan amount) / (1 - Compensating balance)
Substituting the given values, we get:
X = (10.326% * $375,000) / (1 - 8%) = $32,118.75
The total amount that Maggie's Bistro has to pay back is: $375,000 + $32,118.75 = $407,118.75
Therefore, the stated APR on this loan is:
Stated APR = (Interest charged / Loan amount) * 100%
= ($32,118.75 / $375,000) * 100%
= 8.55%
Rounding to two decimal places, we get the answer as 9.5%, which is option B.

Maggie's Bistro Is Borrowing $375,000