HINT: 6% X $1,000,000 – {20% X ($1,000,000 – (6% X $1,000,000))} =

6% X $1,000,000 – {20% X ($1,000,000 - $60,000))}=
6% X $1,000,000 - {20% X $940,000}=
6% X $1,000,000 - $188,000 =
$60,000 - $ 188,000=
-$128,000
A) The interst due on a 10% loan of $1,000,000 at year end without a compensating balance is ($1,000,000 X 10%)= $100,000

B) $1,000,000 – 20% = $800,000-Compensating Balance
$1,000,000 X 9% =$90,000- intrest paid at 9%
$90,000 / $800,000 = 11.25%

What is your question?

I dont' know if i did problem C) correct and Need some direction in figuring out the annual interest rate. I have submitted my work so far. Can you give me guidance if I an on the right track or in left field

To calculate the interest due on a 10% loan of $1,000,000 at year-end without a compensating balance, you can simply multiply the loan amount ($1,000,000) by the interest rate (10%):

Interest due = $1,000,000 * 10% = $100,000 (Option A)

For Option B, it seems like you are trying to calculate the effective interest rate when there is a compensating balance. Let's break it down step-by-step.

First, subtract the compensating balance (20% of $1,000,000) from the loan amount:

Loan amount - Compensating balance = $1,000,000 - (20% * $1,000,000) = $1,000,000 - $200,000 = $800,000

Next, calculate the interest paid at a rate of 9% based on the reduced loan amount:

Interest paid at 9% = $800,000 * 9% = $72,000

Finally, divide the interest paid at 9% by the reduced loan amount to find the effective interest rate:

Effective interest rate = ($72,000 / $800,000) * 100% = 9% (Option B)

Therefore, the correct answer would be Option A: The interest due on a 10% loan of $1,000,000 at year end without a compensating balance is $100,000.

To solve problem A), you need to calculate the interest due on a 10% loan of $1,000,000 at the end of the year without a compensating balance.

The formula to calculate the interest is: Loan Amount x Interest Rate. In this case, the loan amount is $1,000,000 and the interest rate is 10%.

So, the calculation is: $1,000,000 x 10% = $100,000

Therefore, the interest due on a 10% loan of $1,000,000 at the end of the year without a compensating balance is $100,000.

For problem B), you are given that there is a compensating balance of 20%, and you need to calculate the effective interest rate.

First, subtract the compensating balance from the original loan amount: $1,000,000 - 20% = $800,000 (the effective loan amount).

Next, calculate the interest paid at a rate of 9% on the effective loan amount ($800,000): $800,000 x 9% = $72,000.

Finally, divide the interest paid ($72,000) by the effective loan amount ($800,000) and multiply by 100 to find the effective interest rate: ($72,000 / $800,000) x 100 = 9%.

Therefore, the effective interest rate, taking into account the compensating balance, is 9%.