Solved: Compensating balance earns no interest, Finance Basics

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Compensating balance earns no interest

Problem:

My company has a line of credit with a stated interest rate of 10% and compensating balance of 25% and the compensating balance earns no interest.

If my company needs $10,000, how much will I need to borrow? And if the bank offers to forget about the compensating balance requirement if my company pays interest at rate of 12%, should I accept an offer and why?

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Finance Basics: Compensating balance earns no interest

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