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Summit Apparel has a line of credit with a bank for $100,000. The loan agreement includes: • Interest rate = 8% . Compensating balance = 6% of the total borrowed amount (held in a non-interest-bearing account) . The company wants to borrow $90,000 for one year What is the effective interest rate (EIR) on the loan? a. 8.11% b. 8.51% c. 8.87% d. 9.57% e. 10.64%

Summit Apparel has a line of credit with a bank for $100,000. The loan agreement includes: • Interest rate = 8% . Compensating balance = 6% of the total borrowed amount (held in a non-interest-bearing account) . The company wants to borrow $90,000 for one year What is the effective interest rate (EIR) on the loan? a. 8.11% b. 8.51% c. 8.87% d. 9.57% e. 10.64%

EBK CONTEMPORARY FINANCIAL MANAGEMENT
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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Summit Apparel has a line of credit with a bank for $100,000. The loan agreement includes: • Interest rate = 8% . Compensating balance = 6% of the total borrowed amount (held in a non-interest-bearing account) . The company wants to borrow $90,000 for one year What is the effective interest rate (EIR) on the loan? a. 8.11% b. 8.51% c. 8.87% d. 9.57% e. 10.64%
Transcribed Image Text:Summit Apparel has a line of credit with a bank for $100,000. The loan agreement includes: • Interest rate = 8% . Compensating balance = 6% of the total borrowed amount (held in a non-interest-bearing account) . The company wants to borrow $90,000 for one year What is the effective interest rate (EIR) on the loan? a. 8.11% b. 8.51% c. 8.87% d. 9.57% e. 10.64%
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