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The treasurer of Aspire to Inspire Incorporated is seeking a $30,000 loan for 180 days from Wrigley Bank and Trust. The stated interest rate is 10 percent and there is a 15 percent compensating balance requirement. The treasurer always keeps a minimum of $2,500 in the firm's checking account. These funds could count toward meeting any compensating Balance requirement. What is the effective rate of interest on this loan?

Respuesta :

Answer:

Effective interest rate on the loan is 11.76%

Step-by-step explanation:

Here we have loan amount, Principal = $30,000

Duration of loan = 180 days

Interest on loan = 10% = 10% of $30,000 =  $3000  

Compensating balance = 15% of $30000 = $4,500

Available balance =  $30,000 -  $4,500 =  $25,500

Therefore, the effective interest rate is given by

[tex]Effective \, \, interest \, \, rate =\frac{Interest \, Amount }{(Principal) - (Compensating \, Balance)}= \frac{\$3,000 }{\$30,000 - \$4,500}[/tex]

Effective interest rate on the loan =  0.1176 or 11.76 %.

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