New Town Bank offers a $25,000 line of credit with an interest rate of 2.5% per quarter. The loan agreement also requires that 5% of the unused portion of the credit line be deposited in a non-interest bearing account as a compensating balance. Short-term investments are currently paying 1.6% per quarter. What is the effective annual interest rate on the line of credit if a customer borrows the entire $25,000 for one year? Assume any funds borrowed or invested use compound interest.

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The Answer of New Town Bank offers a $25,000 line of credit with an interest rate of 2.5% per quarter. The loan agreement also requires that 5% of the unused portion of the credit line be deposited in a non-interest bearing account as a compensating balance. Short-term investments are currently paying 1.6% per quarter. What is the effective annual interest rate on the line of credit if a customer borrows the entire $25,000 for one year? Assume any funds borrowed or invested use compound interest.

New Town Bank Offers a $25,000 Line of Credit with an Interest