Business, 17.06.2020 19:57 kayleahwilliams6

Summit Record Company is negotiating with two banks for a $157,000 loan. Fidelity Bank requires a compensating balance of 24 percent, discounts the loan, and wants to be paid back in four quarterly payments. Southwest Bank requires a compensating balance of 12 percent, does not discount the loan, but wants to be paid back in 12 monthly installments. The stated rate for both banks is 9 percent. Compensating balances will be subtracted from the $157,000 in determining the available funds in part a. A1. Calculate the effective interest rate for Fidelity Bank and Southwest Bank.
A2. Which loan should Summit accept?
B. Recompute the effective cost of interest, assuming that Summit ordinarily maintains $37,680 at each bank in deposits that will serve as compensating balances.
C. Does your choice of banks change if the assumption in part b is correct?
1. Yes
2. No

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Summit Record Company is negotiating with two banks for a $157,000 loan. Fidelity Bank requires a co...

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