Star Electronics has a credit line of $100,000 with a bank. The loan agreement specifies an interest rate of 8% with a compensating balance requirement of 6% based on the borrowed amount. The compensating balance will be kept in a non-interest-bearing account. What is the effective interest rate if Star Electronics needs to borrow $90,000 for one year?
Star Electronics has a credit line of $100,000 with a bank. The loan agreement specifies an interest rate of 8% with a compensating balance requirement of 6% based on the borrowed amount. The compensating balance will be kept in a non-interest-bearing account. What is the effective interest rate if Star Electronics needs to borrow $90,000 for one year?
Chapter16: Working Capital Policy And Short-term Financing
Section: Chapter Questions
Problem 14P
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Transcribed Image Text:Star Electronics has a credit line of $100,000 with a bank. The loan agreement
specifies an interest rate of 8% with a compensating balance requirement of 6%
based on the borrowed amount. The compensating balance will be kept in a
non-interest-bearing account. What is the effective interest rate if Star
Electronics needs to borrow $90,000 for one year?
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