b How to Develop a Code × connections fsc edu-N × n Announcements-Fall 2 ×M Assi

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b How to Develop a Code × connections fsc edu-N × n Announcements-Fall 2 ×M Assignment 4-Cha&9 G cheggStudy Guided S X × C | ezto.mheducation.com/hm.tpx value: 3.00 points Problem 8-13 Compensating balances [LO8-2 Digital Access Inc. needs $400.000 in funds for a project. (Assume the loan term is one year) a. With a compensating balance requirement of 20 percent, how much will the firm need to borrow? Amount to be borrowed b. Given your answer to part a and a stated interest rate of 9 percent on the total amount borrowed, what is the effective rate on the $400,000 actually being used? (Input your answer as a percent rounded to 2 decimal places.) Effective rate of interest Hints References eBook & Resources Hint#1

Explanation / Answer

Solution.

Amount need in fund = 400,000

compensating balance requirement of 20 percent,

Amount to be borrow= $400,000 / .80 = $500,000

B.

Interest rate = 9%

Interest = $500,000 x 9% = $45,000

Effective rate = $45,000 / $400,000 = 11.25%

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