The effective rate on a loan with a 7% stated rate and 15% compensating balance is approximately ________.
A) 11%
B) 7.2%
C) 8.2%
D) 1.1%

Name: The effective rate on a loan with a 7% stated rate and 15% compensating balance is approximately ________. A) 11% B) 7.2% C) 8.2% D) 1.1%
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Question

Quizplus · Accepted Answer

The effective rate with a compensating balance can be calculated using the formula: Effective Rate = Stated Rate / (1 - Compensating Balance). Here, it's 7% / (1 - 0.15) = 7% / 0.85 = 8.235%, which is approximately 8.2%.

The Effective Rate on a Loan with a 7% Stated