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(Related to Checkpoint 18.3) (Calculating the cost of short-term financing) You plan to borrow $10,000 from the bank to pay for inventories for a gift shop you have just opened. The bank offers to lend you the money at 10 percent annual interest for the 9 months the funds will be needed (assume a 360-day year). a. Calculate the annualized rate of interest on the loan. b. In addition, the bank requires you to maintain a 20 percent compensating balance in the bank. Because you are just opening your business, you do not have a demand deposit account at the bank that can be used to meet the compensating-balance requirement. This means that you will have to put 20 percent of the loan amount (which you had planned to use to help finance the business) in a checking account. What is the cost of the loan now? (Related to Checkpoint 18.3) (Calculating the cost of short-term financing) You plan to borrow $10,000 from the bank to pay for inventories for a gift shop you have just opened. The bank offers to lend you the money at 10 percent annual interest for the 9 months the funds will be needed (assume a 360-day year). a. Calculate the annualized rate of interest on the loan. b. In addition, the bank requires you to maintain a 20 percent compensating balance in the bank. Because you are just opening your business, you do not have a demand deposit account at the bank that can be used to meet the compensating-balance requirement. This means that you will have to put 20 percent of the loan amount (which you had planned to use to help finance the business) in a checking account. What is the cost of the loan now

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