Cold Ice Inc. requires $360,000 in short-term credit and is currently arranging a loan with its bank.
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Question:
Cold Ice Inc. requires $360,000 in short-term credit and is currently arranging a loan with its bank. Cold Ice plans to use the funds for 6 months, the annual rate on the loan is 14 percent, and the bank will require a 10 percent compensating balance.
What is the effective annual cost (APR) of the loan for Cold Ice Inc.(see the information above) if the loan required the payment of interest on a discount basis and a compensating balance?
A 14%
B 16.87%
C 19.77%
D 15.56%
The correct answer is B 16.87 %. I got it wrong in the quiz, but there's no explanation to the question.
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