Problemrachels has a 50000 line of credit with uptown bank, Ask an Expert

Accounting

Problem:

Rachel's has a $50,000 line of credit with Uptown Bank. The line of credit calls for an interest rate of 8 percent and a compensating balance of 4 percent. The compensating balance is based on the total amount borrowed and will be held in an interest-free account.

Required:

Question: What is the effective annual interest rate if the firm borrows $35,000 for one year?

Note: Please show basic calculation.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91170520

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