Would it be worth it to incur a compensating balance of $15,000 in order to get a 2-percent-lower interest rate on a 1-year, pure discount loan of $1,000,000?
A) Yes
B) No
C) Not enough information is given to determine

Question

Quizplus · Accepted Answer

A compensating balance of $15,000 to secure a 2-percent-lower interest rate on a $1,000,000 loan for one year would be worth it. The 2% reduction on a $1,000,000 loan amounts to a $20,000 savings in interest, which exceeds the $15,000 compensating balance, resulting in a net savings.

Would It Be Worth It to Incur a Compensating Balance