Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Compensating balances and effective annual rates Lincoln Industries has a line of credit at Bank Two that requires it to pay 15% interest on its
Compensating balances and effective annual rates Lincoln Industries has a line of credit at Bank Two that requires it to pay 15% interest on its borrowing and to maintain a compensating balance equal to 20% of the amount borrowed. The firm has borrowed $690.000 during the year under the agreement. Calculate the effective annual rare on the firm's borrowing in each of the following circumstances: The firm normally maintains no deposit balance at Bank Two. The firm normally maintains $100.000 in deposit balance at Bank Two. The firm normally maintains $ 130,000 deposit balance at Bank Two. Compare, contrast, and discuss your findings in parts a. b. and c. If the firm normally maintains no deposit balance at the bank, the effective annual rate of interest is %. (Round to two decimal places.)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started