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Loan without a compensating balance

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1. Suppose your firm is seeking a four year, amortizing $230,000 loan with annual payments and your bank is offering you the choice between a $236,500 loan with a $6,500 compensating balance and a $230,000 loan without a compensating balance. The interest rate on the $230,000 loan is 9.8 percent.

How low would the interest rate on the loan with the compensating balance have to be for you to choose it? (Do not round intermediate calculations and round your final answer to 2 decimal places.)

2. Suppose your firm is seeking a seven-year, amortizing $900,000 loan with annual payments and your bank is offering you the choice between a $960,000 loan with a $60,000 compensating balance and a $900,000 loan without a compensating balance. The interest rate on the $900,000 loan is 8.0 percent.

How low would the interest rate on the loan with the compensating balance have to be for you to choose it? (Do not round intermediate calculations and round your final answer to 2 decimal places.)

Reference no: EM131819693

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