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Pern Inc. needs to borrow $250,000 for the next 6 months.


Pern Inc. needs to borrow $250,000 for the next 6 months. The company has a line of credit with a bank that allows the company to borrow funds with an compensating balance. Currently, Penn Inc. has no funds on deposit with the bank and will need the loan to cover the compensating balance as well as their other financing needs. What will be the interest rate subject to a zooloan annual percentage rate, or APR for this financing interest is discounted?


 10.53% 8.75% 11.92% 9.15% 

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Answer #1

=(Loan required/(1-compensating balance %)*rate/2*1/Loan required)*2
=(250000/0.8*7%/2*1/(250000))*2
=8.75%

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