Hayley's Theatrical Supply is in the process of negotiating a line of credit with two local banks.

Question:

Hayley's Theatrical Supply is in the process of negotiating a with two local banks. The prime rate is currently 8 percent. The terms follow:
Bank ........................ Loan Terms
1st National ............. 1 percent above prime rate on a discount basis and a 20 percent compensating balance on the of the loan.
2nd National ............... 2 percent above prime rate and a 15 percent compensating balance.
(a) Calculate the effective interest rate of both banks.
(b) Recommend which bank's Hayley's Theatrical Supply should accept.
Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the... Line of Credit
A line of credit (LOC) is a preset borrowing limit that can be used at any time. The borrower can take money out as needed until the limit is reached, and as money is repaid, it can be borrowed again in the case of an open line of credit. A LOC is...