Wissam Catering Supply, Inc., needs to borrow US$150,000 for 6 months. State Bank has offered to lend the funds at a 9 percent annual rate subject to a 10 percent compensating balance. Currently maintains US$0 on deposit in State Bank.) First National Bank has offered to lend the funds at a 9 percent annual rate with discount-loan terms. The principal of both loans would be payable at maturity as a single sum.
a. Calculate the effective annual rate of interest on each loan.
b. What could Wissam do that would reduce the effective annual rate on the State Bank loan?