# CMA Study Group

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## Cash Management #### Muhammad Zubair Sarwar25 days ago #### Abdulkareem Yaqti22 days ago • #### 1.  Cash Management

Posted 25 days ago
Approximately what amount of compensating balance would be required for a stated interest rate of 10% to equal an effective interest rate of 10.31% on a \$100,000,000 one-year loan?

Solution:

The effective interest rate of 10.31%, or 0.1031 is equal to the interest on the loan divided by the usable funds.

0.1031 = (interest on the loan) ÷ (usable funds)

0.1031 = [\$100,000,000(0.10)] ÷ (\$100,000,000 − x), where x = the compensating balance

Rearranging this equation,

\$10,310,000 − 0.1031x = \$10,000,000

\$310,000 = 0.1031x

x = \$3,006,789.53, or approximately \$3,000,000.

Looking for help to understand the concept, please

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Zubair
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• #### 2.  RE: Cash Management

Posted 22 days ago
we have 100.000.000 loan
100.000.000 * 10.31% we get 10.310.000
the nominal interest is 100.000.000 * 10% = 10.000.000
the difference between two interests is 310.000
divide 310.000 by 10.31% = 3.006.789 compensating balance or approximately 3.000.000.

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Abdulkareem Yaqti
Supervisor
ABDULKAREEM ABDULELAH YAQTI