Analog Computers needs to borrow $800,000 from the Midland Bank. The bank requires a 15% compensating balance. How much money will Analog need to borrow in order to end up with $800,000 spendable cash?
A) $ 920,000
B) $1,058,264
C) $ 941,177
D) none of the other answers are correct

Question

Quizplus · Accepted Answer

To end up with $800,000 spendable cash, Analog Computers will need to borrow more than $800,000 to account for the 15% compensating balance required by the bank.

Let X be the amount of money Analog needs to borrow:
X - 0.15X = $800,000
0.85X = $800,000
X = $941,176.47

Therefore, Analog needs to borrow $941,176.47, which rounded to the nearest thousand, gives us the answer of $941,177 (Choice C).

Analog Computers Needs to Borrow $800,000 from the Midland Bank