[Anonymous]

NINJA Question –

Hello Everybody – Specially to Jeff or someone from the NINJA crew that could help me with a couple of MCQs.

NINJA MCQs #156 & #159 under C:2D1 for BEC are actually confusing me. This is in relation to the computation of the effective interest when using a compensating balance. I used to be very clear on this calculation but since I started practicing these two MCQs I feel like I’m either missing a point (most likely) or they are not consistent.

MCQ 159 has a formula for effective interest = Interest paid / Usable funds (loan amount – discounted interest – compensating balance). I’m ok with that.

However, MCQ 156 does NOT deduct the discounted interest from the usable funds. And that’s the problem I have trying to understand WHY it doesn’t.

I noticed that one question is asking for the effective annual interest cost (MCQ 159) and the other is asking for the effective interest rate for the loan (MCQ 156). To me, they are asking the same thing but I could be wrong.

I would appreciate if somebody could help me understand the difference. I will be greatly appreciated!