Compensating balance to obtain the lower rate, Accounting Basics

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Compensating balance to obtain the lower rate

Problem:

What interest rate would make it worthwhile to incur a compensating balance of $8,500 in order to get a 0.65 percent lower interest rate on a 2 year, pure discount loan of $160,000?

Is it worth incurring the compensating balance to obtain the lower rate?

Note: Explain in detail.

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Accounting Basics: Compensating balance to obtain the lower rate

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Accounting Basics: Compensating balance to obtain the lower rate

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