Compensating balance versus discount loan Weathers Catering Supply, Inc., needs to borrow $ 151 comma 000$151,000...

Compensating balance versus discount loan Weathers Catering Supply, Inc., needs to borrow

$ 151 comma 000$151,000

for

months. State Bank has offered to lend the funds at an annual rate of

9.4 %9.4%

subject to a

10.4 %10.4%

compensating balance.

(Note:

Weathers currently maintains

$ 0$0

on deposit in State Bank.) Frost Finance Co. has offered to lend the funds at an annual rate of

9.4 %9.4%

with discount-loan terms. The principal of both loans would be payable at 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?

Solutions

Expert Solution

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

jeff jeffy answered 1 year ago

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Compensating balance versus discount loan Weathers Catering​ Supply, Inc., needs to borrow $ 151 comma 000$151,000...