Serula Shoes established a line of credit with a local bank.The maximum amount that can be borrowed under the terms of the agreement is $100,000 at an annual rate of 5%.A compensating balance of 10% of the amount borrowed is required.What is the largest amount of money Serula will actually be able to use from the line of credit?
A)$90,909
B)$90,000
C)$111,111
D)$100,000

Question

Quizplus · Accepted Answer

The largest amount Serula can use is calculated by taking the maximum amount that can be borrowed ($100,000) and subtracting the compensating balance requirement (10% of the amount borrowed). Since the compensating balance is based on the amount borrowed, we set up the equation: $x + 0.10x = 100,000$, where $x$ is the amount Serula can use. Solving for $x$ gives us $x = 90,909$.

Serula Shoes Established a Line of Credit with a Local