Problem $8-14($Algo$)$ Compensating balances and installment loans $[$LO$8-2]$

Carey Company is borrowing $$175,000$ for one year at $8\mathrm{.}5$ percent from Second Intrastate Bank. The bank requires a $18$ percent compensating balance. The principal refers to funds the firm can utilize effectively $($Amount borrowed $-$ Compensating balance$).$

a$.$ What is the effective rate of interest?

Note: Use a $360-$day year. Input your answer as a percent rounded to $2$ decimal places.

Effective rate of interest

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

Note: Use a $360-$day year. Input your answer as a percent rounded to $2$ decimal places.

Effective rate of interest