Question: ( LOS - 2 ) Carey Company is borrowing $ 2 0 0 , 0 0 0 for one year at 1 2 percent from

(LOS-2) Carey Company is borrowing $200,000 for one year at 12 percent from Second Intrastate Bank. The bank requires a 20
percent compensating balance. What is the effective rate of interest? What would the effective rate be if Carey were required to make
12 equal monthly payments to retire the loan? The principal, as used in Formula 8-6, refers to funds the firm can utilize effectively
(Amount borrowed - Compensating balance).
(LOS-2) Carey Company is borrowing $200,000 for one year at 12

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