Answer (B) is correct . The compensating balance percentage can be calculated as follows: Stated rate ÷ (1.0 – compensating balance %)?= Effective rate 10% ÷ (100% – CB%)?= 10.31% 10.31% – 10.31CB%?= 10% 10.31CB%?= .31% CB%?= 3% The amount of the compensating balance is therefore $3,000,000 ($100,000,000 × 3%).
Answer (A) is incorrect because The amount of $310,000 results from subtracting the stated rate from the effective rate and moving the decimal.
Answer (C) is incorrect because The amount of $3,100,000 results from subtracting the stated rate from the effective rate.
Answer (D) is incorrect because Enough information is provided to determine the compensating balance.
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