The Babco Co.has a $225,000 line of credit with an interest rate of 6.5 percent and a compensating balance requirement of 4 percent that is based on the total amount borrowed.What is the effective interest rate if the firm needs $163,000 to finance some expenses? The company plans on repaying the loan in a lump sum at the end of 1 year.
A) 7.20%
B) 7.27%
C) 7.08%
D) 5.80%
E) 6.77%
Correct Answer:
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