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Bank ABC extends a $3 million line of credit to Capital Corp. The stated rate of interest is 9.5%. Bank ABC requires Capital to maintain compensating balances equal to 10% of the amount of the line. Assuming that Capital would not normally carry any deposits at the bank, what is the effective annual rate of interest on the loan? a. 12.3% b. 11.6% c. 10.6% d. 9.5%

Bank ABC extends a $3 million line of credit to Capital Corp. The stated rate of interest is 9.5%. Bank ABC requires Capital to maintain compensating balances equal to 10% of the amount of the line. Assuming that Capital would not normally carry any deposits at the bank, what is the effective annual rate of interest on the loan? a. 12.3% b. 11.6% c. 10.6% d. 9.5%

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Bank ABC extends a $3 million line of credit to Capital Corp. The stated rate of interest is 9.5%. Bank ABC requires Capital to maintain compensating balances equal to 10% of the amount of the line. Assuming that Capital would not normally carry any deposits at the bank, what is the effective annual rate of interest on the loan? a. 12.3% b. 11.6% c. 10.6% d. 9.5%
Transcribed Image Text:Bank ABC extends a $3 million line of credit to Capital Corp. The stated rate of interest is 9.5%. Bank ABC requires Capital to maintain compensating balances equal to 10% of the amount of the line. Assuming that Capital would not normally carry any deposits at the bank, what is the effective annual rate of interest on the loan? a. 12.3% b. 11.6% c. 10.6% d. 9.5%
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