1. What interest rate would make it worthwhile to incur a compensating balance o
ID: 2636005 • Letter: 1
Question
1. What interest rate would make it worthwhile to incur a compensating balance of $12,000 in order to get a 1 percent lower interest rate on a 1 year, pure discount loan of $235,000? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places.)
Is it worth incurring the compensating balance to obtain the lower rate?
2. Suppose that LilyMac Photography has annual sales of $235,000, cost of goods sold of $170,000, average inventories of $5,000, average accounts receivable of $26,000, and an average accounts payable balance of $7,500.
Assuming that all of LilyMac
1. What interest rate would make it worthwhile to incur a compensating balance of $12,000 in order to get a 1 percent lower interest rate on a 1 year, pure discount loan of $235,000? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places.)
Explanation / Answer
1. 51%
2. About 7 days
3. 3%
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