The First Webster Bank requires borrowers to maintain a balance of 10% of the line of credit in a non-interest paying account as compensation for providing the line of credit. If the borrower would not normally have deposits in such an account,
A) the amount borrowed will be higher than the amount needed.
B) the APR will be less than the stated rate.
C) the amount borrowed will be lower than the amount needed.
D) neither the amount borrowed nor the APR will be affected by the required balance.

Question

Quizplus · Accepted Answer

The required balance of 10% will increase the amount the borrower needs to borrow, resulting in the amount borrowed being higher than the amount needed. This is because the borrower must maintain a balance in a non-interest paying account to compensate the bank for providing the line of credit.

The First Webster Bank Requires Borrowers to Maintain a Balance