A wholesale company needs to borrow $600,000 to finance inventory for the upcoming seasonal rush. Royalty Bank has offered to finance the inventory at 8% provided that the company keeps a compensating balance in its operating account of 10%. A) How much must the distributor borrow to end up with the $600,000? B) What is the effective rate of interest on this borrowing? Show detailed calculation with a formula where applicable]
A wholesale company needs to borrow $600,000 to finance inventory for the upcoming seasonal rush. Royalty Bank has offered to finance the inventory at 8% provided that the company keeps a compensating balance in its operating account of 10%. A) How much must the distributor borrow to end up with the $600,000? B) What is the effective rate of interest on this borrowing? Show detailed calculation with a formula where applicable]
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Subject:- finance
![A wholesale company needs to borrow $600,000 to finance inventory for the upcoming seasonal rush. Royalty Bank has offered to
finance the inventory at 8% provided that the company keeps a compensating balance in its operating account of 10%. A) How much
must the distributor borrow to end up with the $600,000? B) What is the effective rate of interest on this borrowing? Show detailed
calculation with a formula where applicable]](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F625e400a-444b-4a1e-8aa6-79b2dfefb865%2Fb1b6f729-007f-4c9a-9d0d-a23dc0706946%2Fm6fs8lk_processed.png&w=3840&q=75)
Transcribed Image Text:A wholesale company needs to borrow $600,000 to finance inventory for the upcoming seasonal rush. Royalty Bank has offered to
finance the inventory at 8% provided that the company keeps a compensating balance in its operating account of 10%. A) How much
must the distributor borrow to end up with the $600,000? B) What is the effective rate of interest on this borrowing? Show detailed
calculation with a formula where applicable]
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