QUESTION 10 Speyer Delivery, Inc., wishes to borrow $70,000 at 12% interest from the local bank....

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Question

QUESTION 10 Speyer Delivery, Inc., wishes to borrow $70,000 at 12% interest from the local bank....

QUESTION 10

Speyer Delivery, Inc., wishes to borrow $70,000 at 12% interest from the local bank. However, the bank requires a compensating balance of 9%. The effective interest rate that Speyer Delivery, Inc., will pay on the loan is which of the following?

13.2%

21.0%

11.0%

10.1%

16.4%

business accounting

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Answer 1

Answer #1

Solution:

Net proceed from loan = Amount borrowed - Compensating balance = $70,000 - ($70,000*9%) = $63,700

Annual interest amount = $70,000*12% = $8,400

Effective interest rate that Speyer Delivery, Inc., will pay on the loan = $8,400 / $63,700 = 13.2%

Hence first option is correct.

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Answer 2

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QUESTION 10 Speyer Delivery, Inc., wishes to borrow $70,000 at 12% interest from the local bank....

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		13.2%
		21.0%
		11.0%
		10.1%
		16.4%

QUESTION 10 Speyer Delivery, Inc., wishes to borrow $70,000 at 12% interest from the local bank....

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