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Interest rate on the loan with the compensating balance

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Reference no: EM132007297

Your firm is seeking a 3-year, amortizing $300,000 loan with annual payments and your bank if offering you the choice between a $305,000 loan with $5,000 compensating balance and a $300,000 loan without a compensating balance. If the interest rate on the $300,000 loan is 8%, how low would the interest rate on the loan with the compensating balance have to be in order for you to choose it?

Reference no: EM132007297

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