Question

Randall Corporation plans to borrow $266,000 for one year at 14 percent from the Dominion Trust Company. There is a 27 percent compensating balance requirement. Randall keeps minimum transaction balances of $7,500 in the normal course of business. This idle cash counts toward meeting the compensating balance requirement.

What is the annual rate of interest? (Use 365 days in a year. Round the final answer to 2 decimal places.)

Answer 1

Randall Corporation
Effective rate of interest = Interest / (Principal - Compensating Balance)
		x Days in the year / Days Loan is outstanding
		=[ 37240 / ( 266000 - 64320 ) ]x365/365
		=[ 37240 / ( 201680 ) ]x365/365
		= 18.46%
266000 x 27% = 71820 - 7500 = 64320
266000 x 14% = 37240