A financial institution made a $4 million, 1-year discount loan at 6% interest, requiring a compensating balance
Question:
A financial institution made a $4 million, 1-year discount loan at 6% interest, requiring a compensating balance equal to 5% of the face value of the loan. Determine the effective annual rate associated with this loan. (Assume that the firm currently maintains $0 on deposit in the financial institution.)
Face ValueFace 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...
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Because this is a discount loan interest is essentiall...View the full answer
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Related Book For 
Principles of Managerial Finance
ISBN: 978-0134476315
15th edition
Authors: Chad J. Zutter, Scott B. Smart
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