County Bank offers one-year loans with a stated rate of 9 percent, but requires a compensating balance

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County Bank offers one-year loans with a stated rate of 9 percent, but requires a compensating balance of 10 percent. What is the true cost of this loan to the borrower? How does the cost change if the compensating balance is 15 percent? If the compensating balance is 20 percent? In each case, assume origination fees and the reserve requirement are zero.
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Financial Institutions Management A Risk Management Approach

ISBN: 978-0071051590

8th edition

Authors: Marcia Cornett, Patricia McGraw, Anthony Saunders

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