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The treasurer of Brandon Blue Sox is seeking a $36,000 loan for 180 days from the...

The treasurer of Brandon Blue Sox is seeking a $36,000 loan for 180 days from the Brandon Credit Union. The stated interest rate is 10 percent and there is a 15 percent compensating balance requirement. The treasurer always keeps a minimum of $3,100 in the firm’s chequing account. These funds could count toward meeting any compensating balance requirements.

What is the annual rate of interest on this loan?

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Answer #1

interest = $36,000*10%*180/360

=>1800

compensating balance to be maintained out of loan funds = (36,000*15%) -3100 minimum balance

=>$2,300.

now,

effective interest rate = interest / (principal - compensating balance) * number of days in year / days loan is outstanding

=>1800/(36000-2300) * 360/180

=>0.106825

=>10.6825% (or) 10.68%...(rounded to two decimals).

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