Suppose your firm is seeking an eight-year, amortizing $800,000 loan with annual payments and your bank is offering you the choice between an $850,000 loan with a $50,000 compensating balance and an $800,000 loan without a compensating balance. If the interest rate on the $800,000 loan is 8.5 percent, how low would the interest rate on the loan with the compensating balance have to be in order for you to choose it?
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