Effective rate of two financing options

Reference no: EM1354818

In order to finance a shipment of Mexican pottery, Gulf Stream Imports is seeking a $500,000 one year bank loan. The Mercantile Bank requires that Gulf Stream Imports maintain a 20% compensating balance and requires four quarterly payments. The marine bank requires only a 10% compensating balance but requires twelve monthly payments. In addition marine discounts the loan. Both banks interest rate is 9%

a) Find the effective rate of both. Which is lowest?

b) If Marine Bank eliminates its compenstating balance requirement, would the answer change? What would the new effective rate be?

Reference no: EM1354818

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