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Effective annual cost of the loan for cold ice inc

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Cold Ice Inc. requires $360,000 in short-term credit and is currently arranging a loan with its bank. Cold Ice plans to use the funds for 6 months, the annual rate on the loan is 14 percent, and the bank will require a 10 percent compensating balance.

What is the effective annual cost (APR) of the loan for Cold Ice Inc.(see the information above) if the loan required the payment of interest on a discount basis and a compensating balance?

A 14%

B 16.87%

C 19.77%

D 15.56%

The correct answer is B 16.87 %. I got it wrong in the quiz, but there's no explanation to the question.

Reference no: EM133114448

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