Merc Express Has a $50,000 Line of Credit with Crossroads

Merc Express has a $50,000 line of credit with Crossroads Bank. The loan agreement requires that 3.5% of the unused portion of the credit line be deposited in a non-interest bearing account as a compensating balance. The interest rate on the borrowed funds is 2.4% per quarter. Merc Express' short-term investments are paying 1.75% per quarter. What is the effective annual interest rate on the line of credit if Merc Express borrows the entire $50,000 for one year? Assume any funds borrowed or invested use compound interest.

A) 9.84%
B) 9.95%
C) 10.05%
D) 10.11%
E) 10.37%