A Large Manufacturer Needs a $100,000 Loan to Finance Inventory

Multiple Choice

A large manufacturer needs a $100,000 loan to finance inventory. It can open a line of credit with a local bank at a 13 percent interest rate. However, it must also maintain a 10 percent minimum compensating balance. The effective interest rate on the loan is:

A) 13 percent.
B) 13.13 percent.
C) 14.44 percent.
D) 23 percent.