Give answer this financial accounting Juno Industrial Supply has a $150,000 line of credit with a 6.5 percent interest rate. The loanagreement requires a 2 percent compensating balance, which is based on the total amount borrowed,and which will be held in an interest-free account. What is the effective interest rate if the firmborrows $91,800 on the line of credit for one year?A. 6.42 percentB. 6.47 percentC. 6.50 percentD. 6.58 percentE. 6.63 percent

Step 1: Define Compensating BalanceThe compensating balance refers to the amount of money required…

Answered: Juno Industrial Supply has a $150,000…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 14P

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Financial Accounting
vv. Subject Finance
Consider two loans with a 1-year maturity and identical face values: a(n) 8.3% loan with a 0.99% loan origination fee and a(n) 8.3% loan with a 4.9% (no-interest) compensating balance requirement. Which loan would have the higher effective annual rate (EAR)? Why? The EAR in the first case is %. (Round to one decimal place.)
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