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

Question

Quizplus · Accepted Answer

To end up with $475,000 spendable cash, Analog Computers needs to borrow an amount that equates to $475,000 divided by 0.85 (100% - 15% compensating balance). Therefore, the formula can be written as:
Amount to borrow = $475,000 / (1 - 15%) = $475,000 / 0.85 = $558,824
Therefore, the best choice is (C) $558,824.

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