Respuesta :
Answer:
effective interest rate = 11.6 %
so correct option is d. 11.6%
Explanation:
given data
borrows = $2,000,000
annual interest = 11 %
compensatory balance = $200,000
earn interest = 5%
to find out
effective interest rate
solution
first we get here fund that is available for use that is
fund available for use is = borrows - compensatory balance ........1
fund available for use is = $2,000,000 - $200,000
fund available for use is = $1,800,000
and
interest at borrow @11% = $2,000,000 × 11%
interest at borrow @11% = $220,000
and
interest earn at @5% = $200,000 × 5%
interest earn at @5% = $10,000
so
effective interest paid is = $220,000 - $10,000
effective interest paid is = $210,000
and
now effective interest rate will be
effective interest rate = [tex]\frac{effective\ interest\ paid}{fund\ available\ for\ use}[/tex]
effective interest rate = [tex]\frac{210,000}{1,800,000 }[/tex]
effective interest rate = 11.6 %
so correct option is d. 11.6%
