Your firm is considering the following three alternative bank loans for $1,000,000: a) 10% loan paid at

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Your firm is considering the following three alternative bank loans for $1,000,000:

a) 10% loan paid at year end with no compensating balance

b) 9% loan paid at year end with a 20% compensating balance

c) 6% loan that is discounted with a 20% compensating balance requirement

Assume that you would normally not carry any bank balance that would meet the 20% compensating balance requirement. What is the rate of annual interest on each loan?

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Related Book For book-img-for-question

Principles of managerial finance

ISBN: 978-0132479547

12th edition

Authors: Lawrence J Gitman, Chad J Zutter

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Question Posted: Jul 26, 2013 03:24 AM

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Your firm is considering the following three alternative bank loans for $1,000,000: a) 10% loan paid at

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a Since here there is no compensating balance associated so the annual interest r...View the full answer

Principles of managerial finance

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