Determine the actual annual interest rate on a $40,000 line of credit with an annual percentage rate

Question:

Determine the actual annual interest rate on a $40,000 with an annual percentage rate of 12% compounded monthly. The bank requires that a 10% compensating balance be placed in an interest-bearing account that pays an annual percentage rate of 1.25% compounded monthly. The average daily balance is anticipated to be $25,000, excluding the compensating balance and interest due on the Line of Credit
A line of credit (LOC) is a preset borrowing limit that can be used at any time. The borrower can take money out as needed until the limit is reached, and as money is repaid, it can be borrowed again in the case of an open line of credit. A LOC is...