The Friendly Bank offers AB United a $200,000 line of credit with an interest rate of 2.25% per quarter. The credit line also requires that 2% of the unused portion of the credit line be deposited in a non-interest bearing account as a compensating balance. AB United's short-term investments are paying 1.5% per quarter. What is the effective annual interest rate on this arrangement if the line of credit goes unused all year? Assume any funds borrowed or invested use compound interest.

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The Answer of The Friendly Bank offers AB United a $200,000 line of credit with an interest rate of 2.25% per quarter. The credit line also requires that 2% of the unused portion of the credit line be deposited in a non-interest bearing account as a compensating balance. AB United's short-term investments are paying 1.5% per quarter. What is the effective annual interest rate on this arrangement if the line of credit goes unused all year? Assume any funds borrowed or invested use compound interest.

The Friendly Bank Offers AB United a $200,000 Line of Credit