ncoln Industries has a line of credit at Bank Two that requires it to pay 11% interest on its borrowing and to maintain a compensating balance equal to 15% of the amount borrowed. The firm has borrowed $800,000 during the year under the agreement. Calculate the effective annual rate on the firm’s borrowing in each of the following circumstances: 1.The firm normally maintains no deposit balances at Bank Two. Format: 11.11% 2. The firm normally maintains $70,000 in deposit balances at Bank Two. Format: 11.11% 3.The firm normally maintains $150,000 in deposit balances at Ba
ncoln Industries has a line of credit at Bank Two that requires it to pay 11% interest on its borrowing and to maintain a compensating balance equal to 15% of the amount borrowed. The firm has borrowed $800,000 during the year under the agreement. Calculate the effective annual rate on the firm’s borrowing in each of the following circumstances: 1.The firm normally maintains no deposit balances at Bank Two. Format: 11.11% 2. The firm normally maintains $70,000 in deposit balances at Bank Two. Format: 11.11% 3.The firm normally maintains $150,000 in deposit balances at Ba
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Lincoln Industries has a line of credit at Bank Two that requires it to pay 11% interest on its borrowing and to maintain a compensating balance equal to 15% of the amount borrowed. The firm has borrowed $800,000 during the year under the agreement. Calculate the effective annual rate on the firm’s borrowing in each of the following circumstances:
1.The firm normally maintains no deposit balances at Bank Two. Format: 11.11%
2. The firm normally maintains $70,000 in deposit balances at Bank Two. Format: 11.11%
3.The firm normally maintains $150,000 in deposit balances at Bank Two. Format: 11%
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