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AICPA Exam CPA-Business Topic 1 Question 11 Discussion
Actual exam question for
AICPA's
CPA-Business exam
Question #: 11
Topic #: 1
[All CPA-Business Questions]
Topic #: 1
A company obtained a short-term bank loan of $500,000 at an annual interest rate of eight percent. As a condition of the loan, the company is required to maintain a compensating balance of $100,000 in its checking account. The checking account earns interest at an annual rate of three percent. Ordinarily, the company maintains a balance of $50,000 in its account for transaction purposes. What is the effective interest rate of the loan?
Suggested Answer:
D
Choice 'd' is correct. 8.56%. To calculate the effective annualized percentage cost of financing:
Choices 'a', 'b', and 'c' are incorrect, per the above calculation.
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