Mathematics: 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?

The treasurer of Aspire to Inspire Incorporated

benbeltran9030

14.02.2022

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

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

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

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