On january 1, 2010, lynn company borrows $2,000,000 from national bank at 11% annual interest. in addition, lynn is required to keep a compensatory balance of $200,000 on deposit at national bank which will earn interest at 5%.

the effective interest that lynn pays on its $2,000,000 loan is:

a. 10.0%.
b. 11.0%.
c. 11.5%.
d. 11.6%.

effective interest rate =  11.6 %

so correct option is d. 11.6%

Explanation:

given data

borrows = $2,000,000

annual interest = 11 %

compensatory balance = $200,000

earn interest = 5%

to find out

effective interest rate

solution

first we get here fund that is available for use that is

fund available for use is = borrows - compensatory balance    ........1

fund available for use is =  $2,000,000 - $200,000

fund available for use is =  $1,800,000

and

interest at borrow @11% = $2,000,000 × 11%

interest at borrow @11% = $220,000

and

interest earn at @5% = $200,000  × 5%

interest earn at @5% = $10,000

so

effective interest paid is = $220,000 -  $10,000

effective interest paid is =  $210,000

and

now effective interest rate will be

effective interest rate =

effective interest rate =

effective interest rate =  11.6 %

so correct option is d. 11.6%

explanation:

a gas is not used in hydraulic machines as the fluid because gas is easily compressible and so if a gas is used, the energy would mostly go into compressing a gas. therefore a liquid is used in hydraulic machines as the fluid.

a

explanation: