2B5DD TODD MANUFACTURING COMPANY NEEDS A $100 MILLION LOAN FOR ONE YE...
184.
CSO: 2B5f
LOS: 2B5dd
Todd Manufacturing Company needs a $100 million loan for one year. Todd’s banker
has presented two alternatives as follows:
Option #1 - Loan with a stated interest rate of 10.25%. No compensating balance
required.
Option #2 - Loan with a stated interest rate of 10.00%. Non-interest bearing
compensating balance required.
Which of the following compensating balances, withheld from the loan proceeds, would
result in Option #2 having an effective interest rate equal to the 10.25% rate of Option
#1?
a.
$250,000.
b.
$2,440,000.
c.
$2,500,000.
d.
$10,250,000.