    LOAN RATE WITH COMPENSATING BALANCE

WHEN A BUSINESSMAN BORROWS MONEY FROM A BANK HE IS SOMETIMES
REQUIRED TO KEEP A COMPENSATING BALANCE IN THE ACCOUNT.
A COMPENSATING BALANCE IS AN AMOUNT THAT THE BUSINESSMAN
PAYS INTEREST ON(AS HE HAS BORROWED IT) BUT WHICH HE
CANNOT WITHDRAW FROM HIS ACCOUNT. IF A 15% COMPENSATING
BALANCE IS REQUIRED,E.G. THIS MEANS THAT FOR EVERY $1,000
BORROWED THE BUSINESSMAN CAN ONLY WRITE CHECKS FOR $850.
THIS IS ONE METHOD A BANK USES TO RAISE THE EFFECTIVE INTEREST
RATE ON A LOAN. THE NOMINAL RATE ,IN THIS CASE, IS LOWER
THAN THE 'TRUE' EFFECTIVE RATE.

PRESS ENTER TO BEGIN? 
INPUT PROCEEDS OF LOAN IN $            ? 123456.78
INPUT COMPENSATING BALANCE %           ? 3.45
NOMINAL INTEREST RATE ON LOAN(%)       ? 6.78
NORMAL ACCOUNT BALANCE WITH NO LOAN   $? 34567.89

NOMINAL COMPENSATING BALANCE AMOUNT          $0.00
TRUE COMPENSATING BALANCE AMOUNT     -$34567.89
AVAILABLE FUNDS FROM LOAN     $153765.41
EFFECTIVE INTEREST RATE             5.44%

PRESS ENTER FOR MORE COMPUTATION? -1
