The stated bank loan rate is 8%, payable annually, but the loan requires a compensating balance of
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The stated bank loan rate is 8%, payable annually, but the loan requires a compensating balance of 10% on which no interest is earned. What is the effective interest rate on the loan? What happens to the effective rate if the compensating balance is doubled to 20%?
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Related Book For 
Fundamentals of Corporate Finance
ISBN: 978-1259024962
6th Canadian edition
Authors: Richard Brealey, Stewart Myers, Alan Marcus, Devashis Mitra, Elizabeth Maynes, William Lim
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