Come and Go Bank offers your firm a discount interest loan with an interest rate of...
Come and Go Bank offers your firm a discount interest loan with an interest rate of 9 percent for up to $21 million, and in addition requires you to maintain a 2 percent compensating balance against the face amount borrowed.
What is the effective annual interest rate on this lending arrangement? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Effective annual rate= %
Homework Answers
Interest Paid = 0.09(21) = $1.89 million
Amount Received = (21 - 1.89) - (21)(0.02)
Amount Received = $18.69 million
EAR = 1.89/18.69
EAR = 10.11%
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