Carey Company is borrowing $200,000 for one year at 9.0 percent from Second Intrastate Bank. The bank requires a 20 percent compensating balance. The principal refers to funds the firm can effectively utilize (Amount borrowed ? Compensating balance).   
  
a. What is the effective rate of interest? (Use a 360-day year. Input your answer as a percent rounded to 2 decimal places.)
  

     

b. What would the effective rate be if Carey were required to make 12 equal monthly payments to retire the loan?

Answer rating: 100% (QA)

a To calculate the effective rate of interest when a portion of the loan is frozen as a compensating ... View the full answer