Compensating balance vs discount loan
Weathers catering supply, Inc., needs to borrow 150000 baht for 7 months.
State Bank has offered to lend the funds at a 9% annual rate subject to a 10% compensating balance.
Frost Finance Co. has offered to lend the funds at 9% annual rate with discount-loan terms.
The principal of both loans would be payable at maturity as a single sum.
A. Calculate the effective annual rate of interest on each loan.
B. What could Weathers do that would reduce effective annual rate on the State Bank loan