Cheap Money Bank offers your firm a discount interest loan with an interest rate of 9.85 percent for up to $25 million, and in addition requires you to maintain a 4.5 percent compensating balance against the face amount borrowed. What is the effective annual interest rate on this lending arrangement? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. Effective annual rate %
Cheap Money Bank offers your firm a discount interest loan with an interest rate of 9.85 percent for up to $25 million, and in addition requires you to maintain a 4.5 percent compensating balance against the face amount borrowed. What is the effective annual interest rate on this lending arrangement? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. Effective annual rate %
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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Question
![Cheap Money Bank offers your firm a discount interest loan with an interest rate of 9.85 percent for up to $25
million, and in addition requires you to maintain a 4.5 percent compensating balance against the face amount
borrowed. What is the effective annual interest rate on this lending arrangement?
Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places,
e.g., 32.16.
Effective annual rate
%](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F2f4facc4-fd17-4182-865d-7e91727d74d3%2F32291943-069c-414c-9e53-4951b0e747df%2Fxjr09w9_processed.png&w=3840&q=75)
Transcribed Image Text:Cheap Money Bank offers your firm a discount interest loan with an interest rate of 9.85 percent for up to $25
million, and in addition requires you to maintain a 4.5 percent compensating balance against the face amount
borrowed. What is the effective annual interest rate on this lending arrangement?
Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places,
e.g., 32.16.
Effective annual rate
%
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