Assume that the First State Bank of Chicago requires a 20 percent compensating balance on short-term loans. If you borrow $50,000, at least ____ of the loan amount must be kept on deposit at the bank.
A) $4,000
B) $10,000
C) $1,000
D) $20,000
E) $50,000

Question

Quizplus · Accepted Answer

A compensating balance of 20 percent on a $50,000 loan means 20% of $50,000 must be kept on deposit, which is $10,000.

Assume That the First State Bank of Chicago Requires a 20