Analog Computers needs to borrow $475,000 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 $475,000 spendable cash?
A)$546,250
B)$758,264
C)$558,824
D)None of these options

Question

Quizplus · Accepted Answer

The amount of the loan needed to end up with $475,000 spendable cash can be calculated as follows:

Let X be the amount of the loan needed. 
15% of X is the compensating balance required by the bank. 
Thus, the amount available for spending is 85% of X. 
We want this amount to be $475,000, so we can write:

0.85X = $475,000

Solving for X:

X = $475,000 / 0.85 = $558,823.53

Therefore, Analog Computers needs to borrow $558,824 to end up with $475,000 spendable cash. The closest answer choice is C, $558,824.

Analog Computers Needs to Borrow $475,000 from the Midland Bank