Brown Inc. needs to borrow $250,000 for the next 6 months. The company has a lin

Question

Brown Inc. needs to borrow $250,000 for the next 6 months. The company has a line of credit with a bank that allows the company to borrow funds with an 8% interest rate subject to a 20% of loan compensating balance. Currently, Brown Inc. has no funds on deposit with the bank and will need the loan to cover the compensating balance as well as their other financing needs. What will be the annual percentage rate, or APR, for this financing?

A) 10.00%

B) 12.12%

C) 10.67%

D) 13.33%

Answer is A

Brown Inc. needs to borrow $250,000 for the next 6 months. The company has a line of credit with a bank that allows the company to borrow funds with an 8% interest rate subject to a 20% of loan compensating balance. Currently, Brown Inc. has no funds on deposit with the bank and will need the loan to cover the compensating balance as well as their other financing needs. What is the annual percentage rate for this financing assuming discounted interest?

A) 14.29%

B) 12.98%

C) 11.67%

D) 10.53%

Answer is D

Need explaination, I know the answers.

Explanation / Answer

Part 1

Part 2

Interest 250000*.08 20000 Loan Balance After Compensating Balance 250000-(25000*.20) 200000 APR, for this financing 20000/200000 10.00%

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