part 1:2

part 2:2

As the owner of Mountain Sports, you have approached your bank about a one year loan for your ski and mountain bike rental business. The business needs $20,000 and the bank has offered to make the loan with the following conditions: (1) the bank will charge 5% discount interest and (2) the bank requires a 15% compensating balance. How much do you have to actually borrow from the bank to have $20,000 of usable funds? Note: This is a Web Appendix 15B topic. For this question, assume that the amount that you have to actually borrow for Mountain Sports, your ski and mountain bike rental business mentioned in the previous question, is $22,000. Also assume that it is still a one year loan and the bank will charge 5% discount interest and require a 15% compensating balance, then determine the effective annual interest rate that the bank is charging Mountain Sports. Note: This is a Web Appendix 15B topic