Compensating balance versus discount loan Weathers Catering Supply, Inc

Accounting May 22, 2021

Compensating balance versus discount loan Weathers Catering Supply, Inc. needs to borrow $150,000 for six months. State Bank has offered to lend the funds at a 9% annual rate subject to a 10% compensating balance. (Note; Weathers maintain $0 on deposit in State Bank) Frost Finance Co. has offered to lend the funds at 9% annual rate with discount-loan terms. The principal of both loans would be payable as maturity as a single sum.

a) Calculate the effective annual rate of interest on each loan.

b) What could Weathers do that would reduce the effective annual rate on the State Bank loan?

Expert Solution

PFA

Download Solution Attachment (PDF/Doc)

Archived Solution

Unlocked Solution

You have full access to this solution. To save a copy with all formatting and attachments, use the button below.

Already a member? Sign In

Important Note: This solution is from our archive and has been purchased by others. Submitting it as-is may trigger plagiarism detection. Use it for reference only.

For ready-to-submit work, please order a fresh solution below.

Or get 100% fresh solution

Get Custom Quote