P15-13

Calculate the effective annual rate on the firm's borrowing if the firm normally maintains $150,000 in deposit balances at Bank Two. Compare, contrast, and discuss your finding in parts a, b, and c. 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. 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. Calculate the effective annual rate of interest on each loan What Could Weather do that would reduce the effective annual rate on the State Bank loan