Holland Construction Co. has an outstanding 180-day bank loan of $475,000 at an annual interest rate of 7.5%. The company is required to maintain a 15% compensating balance in its checking account. What is the effective interest rate on the loan? Assume the company would not normally maintain this average amount.

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The effective interest rate is calculated by considering the compensating balance requirement. The actual amount available to the company is $475,000 - (15% of $475,000). The interest paid is $475,000 * 7.5% * (180/360). The effective interest rate is the interest paid divided by the actual amount available, which results in approximately 8.8%.