You plan to borrow ?$10,000 from the bank to pay for inventoriesfor a gift shop you have just opened. The bank offers to lend youthe money at 10 percent annual interest for the 6 months the fundswill 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 16 percentcompensating balance in the bank. Because you are just openingyour? business, you do not have a demand deposit account at thebank that can be used to meet the? compensating-balancerequirement. This means that you will have to put 16 percent of theloan amount? (which you had planned to use to help finance the?business) in a checking account. What is the cost of the loan?now?
c.??In addition to the? compensating-balance requirement in partb?, you are told that interest will be discounted. What is theannualized rate of interest on the loan? now
