Krebsbach Company is negotiating a loan with FIS Bank. Krebsbach needs $900,000. As part of the loan
Question:
Krebsbach Company is negotiating a loan with FIS Bank. Krebsbach needs $900,000. As part of the loan agreement, FIS Bank will require Krebsbach to maintain a compensating balance of 15% of the loan amount on deposit in a checking account at the bank. Krebsbach currently maintains a balance of $50,000 in the checking account. The interest rate Krebsbach is required to pay on the loan is 12%; the interest rate FIS pays on checking accounts is 4%.
Instructions:
1. Compute the amount of the loan.
2. Determine the effective interest rate on the loan.
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Related Book For
Intermediate Accounting
ISBN: 978-0324592375
17th Edition
Authors: James D. Stice, Earl K. Stice, Fred Skousen
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