Question

"Idaho​ Mining, Inc. borrows at prime plus​ 1.5% on its line of credit. The line requires a​ 15% compensating balance. If the prime rate is​ 9% and Idaho Mining plans on borrowing for a period of one​ year, what is the nominal APR of the line of​ credit?"

Answer 1

the nominal annual percentage rate for the line of credit is 12.4%

Step-by-step explanation:

The computation of the nominal annual percentage rate is given below:

Nominal Annual percentage rate is

= (Prime rate + line of credit) ÷ (1 - compensation balance percentage)

= (9% + 1.50%) ÷ (1 - 15%)

= 10.50% ÷ 85%

= 12.4%

Hence, the nominal annual percentage rate for the line of credit is 12.4%

The same should be considered