Compensating Balance Compensating balance refers to that practice wherein a bank requires...

Compensating Balance Compensating balance refers to that practice wherein a bank requires a borrower to maintain on deposit a certain portion of a loan during the term of the loan. For example, if a firm takes out a $100,000 loan that requires a compensating balance of 20%, it would have to leave $20,000 on deposit and would have the use of $80,000. To meet the expenses of retooling, the Barber Die Company needs $195,000. The Third National Bank, with whom the firm has had no prior association, requires a compensating balance of 16%. To the nearest thousand dollars, what amount of loan is required to obtain the needed funds? Now solve the general problem of determining the amount L of a loan that is needed to handle expenses E if the bank requires a compensating balance of p%.