The stated bank loan rate is 8%, payable annually, but the loan requires a compensating balance of

Question:

The stated bank loan rate is 8%, payable annually, but the loan requires a compensating balance of 10% on which no interest is earned. What is the effective interest rate on the loan? What happens to the effective rate if the compensating balance is doubled to 20%?

Fantastic news! We've Found the answer you've been seeking!