Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Compensating balance versus discount loan. FIN-450 question. I'm a little confused about the compensating balance piece. P16-13 Compensating balance versus discount loan Weathers Catering Supply,

Compensating balance versus discount loan.

FIN-450 question. I'm a little confused about the compensating balance piece.

P16-13 Compensating balance versus discount loan Weathers Catering Supply, Inc., needs to borrow $150,000 for 6 months. State Bank has offered to lend the funds at a 9% annual rate subject to a 10% compensating balance. (Note: Weathers currently maintains $0 on deposit in State Bank.) Frost Finance Co. has offered to lend the

funds at a 9% annual rate with discount-loan terms. The principal of both loans would be payable at maturity as a single sum.

a. Calculate the effective annual rate of interest on each loan.

b. What could Weathers do that would reduce the effective annual rate on the State Bank loan?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Personal Financial Planning

Authors: Randy Billingsley, Lawrence J. Gitman, Michael D. Joehnk

14th edition

978-1305887725, 1305887727, 1305636619, 978-1305636613

More Books

Students also viewed these Finance questions

Question

Describe the basic features of JIT purchasing and manufacturing.

Answered: 1 week ago

Question

What does it mean to exploit internal and external link ages?

Answered: 1 week ago