Your brother has just taken out a loan for $75,000. The stated (simple) interest rate on this loan is 10 percent, and the bank requires him to maintain a compensating balance equal to 15 percent of the initial face amount of the loan. He currently has $20,000 in his checking account, and he plans to maintain this balance. The loan is an add-on installment loan which he wil repay in 12 equal monthly instaliments, beginning at the end of the first month. What is the approximate average usable funds on this loan? Select one: a. $6,875 b. $20,000 C. $15,000 d. $75,000 e. $37,500

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
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Your brother has just taken out a loan for $75,000. The stated (simple) interest rate on this loan is 10 percent, and the bank requires him to maintain a
compensating balance equal to 15 percent of the initial face amount of the loan. He currently has $20,000 in his checking account, and he plans to
maintain this balance. The loan is an add-on installment loan which he will repay in 12 equal monthly instaliments, beginning at the end of the tirst
month.
What is the approximate average usable funds on this loan?
Select one:
a. $6,875
b. $20,000
c. $15,000
d. $75,000
e. $37,500
Transcribed Image Text:Your brother has just taken out a loan for $75,000. The stated (simple) interest rate on this loan is 10 percent, and the bank requires him to maintain a compensating balance equal to 15 percent of the initial face amount of the loan. He currently has $20,000 in his checking account, and he plans to maintain this balance. The loan is an add-on installment loan which he will repay in 12 equal monthly instaliments, beginning at the end of the tirst month. What is the approximate average usable funds on this loan? Select one: a. $6,875 b. $20,000 c. $15,000 d. $75,000 e. $37,500
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