Problem: compensating balances with idle cash balances.
The treasurer for Macon Blue Sox baseball team is seeking a $20000 loan for one year from the 4th National Bank of Macon. The stated interest rate is 10%,and there is a 15% compensating balance requirement. The treasurer always keeps a minimum of $1500 in the baseball team's checking accounts. These funds count toward meeting any compensating balance requirements.
What will be the effective rate of interest on this loan?