A bank lends a firm $1,000,000 for one year at 12 percent on a discounted basis and requires compensating balances of 10 percent of the face value of the loan. The effective annual interest rate associated with this loan is
A. 12 percent.
B. 13.3 percent.
C. 13.6 percent.
D. 15.4 percent.
Answer:D
A bank lends a firm $1,000,000 for one year at 12 percent on a discounted basis and requires compensating balances of 10 percent of the face value of the loan. The effective annual interest rate associated with this loan is
A. 12 percent. B. 13.3 percent. C. 13.6 percent. D. 15.4 percent.