Answer:
option (b) 9.5%
Explanation:
Data provided in the question:
Loan Amount = $2,000,000
Annual interest rate = 9%
Required compensating balance = $100,000
Now,
Effective interest rate(EIR)
= (loan × Annual interest on loan) ÷ (Loan - Required compensating balance)
= ($2,000,000 × 9% ) ÷ ( $2,000,000 - $100,000 )
= ($2,000,000 × 0.09 ) ÷ ( $1,900,000 )
= 0.0947 ≈ 0.095
or
= 0.095 × 100%
= 9.5%
Hence,
the answer is option (b) 9.5%
