DeAngelo Bank offers your firm a 8 percent discount interest

DeAngelo Bank offers your firm a 8 percent discount interest loan for up to $5 million, and in addition requires you to maintain a 5 percent compensating balance against the amount borrowed. The effective annual interest rate on this lending arrangement is _____ percent. (Do not include the percent sign (%). Round your answer to 2 decimal places. (e.g., 32.16))

5% of $5,000,000 = $250,000 So effective Loan amount is 5,000,000 - 250,000 = $4,750,000 Int of 8% on $5M = $400,000 So we are paying $400,000 as Int on actual funds of $4750,000 So Efefctive Int Rate = $400,000/4750,000 = 8.42%

DeAngelo Bank offers your firm a 8 percent discount interest

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