Question
To finance a shipment of badminton sets, Rujisawa Import-Export is seeking a $500,000 one-year bank loan. The Marine Bank requires that Rujisawa maintain a 20%
To finance a shipment of badminton sets, Rujisawa Import-Export is seeking a $500,000 one-year bank loan. The Marine Bank requires that Rujisawa maintain a 20% compensating balance and requires four quarterly payments. The Prairie Bank requires only a 10% compensating balance but requires 12 monthly payments. In addition, the Prairie Bank discounts the loan. Both banks state that their interest rate is 9%. A) Which bank has the lowest annual interest rate? (NOTE: deduct the compensating balances from the principal in determining the annual rate.) B) If Prairie Bank eliminated its compensating-balance requirement, would your answer change?
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