What interest rate would make it worthwhile to incur a compensating balance of $

Question

What interest rate would make it worthwhile to incur a compensating balance of $9,000 in order to get a 0.65 percent lower interest rate on a 2 year, pure discount loan of $165,000? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places.)

What interest rate would make it worthwhile to incur a compensating balance of $9,000 in order to get a 0.65 percent lower interest rate on a 2 year, pure discount loan of $165,000? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places.)

Explanation / Answer

Future value = Present Value ( 1+r)^n

174000= 165000(1+r)^2

174000/165000= (1+r)^2

1.05454 = (1+r)^2

2.69%

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