CMA Study Group

Cash Management

  • 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
    ALMADINAH
    Saudi Arabia
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  • 3.  RE: Cash Management

    Posted 8 days ago
    Thanks dear

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    Zubair
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