Pacific Automotive has a $250,000 compensating balance loan with its bank. The terms of the loan call for Pacific to keep 10% of the loan as a compensating balance and pay interest at an annual rate of 6.50% on the entire amount
If the firm borrows the maximum amount for one year, how much interest is due at the end of the year?
A) $14,625
B) $16,250
C) $22,500
D) $25,000
Answer: B
Explanation: B) Interest due = rate × total loan amount = .065 × $250,000 = $16,250.
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