A Bank Offers Your Firm a Revolving Credit Arrangement for Up

A bank offers your firm a revolving credit arrangement for up to $115 million at an interest rate of 2 percent per quarter.The bank also requires you to maintain a compensating balance of 5 percent against the unused portion of the credit line,to be deposited in a non-interest-bearing account.Assume you have a short-term investment account at the bank that pays 1.3 percent per quarter,and assume the bank uses compound interest on its revolving credit loans.What is the effective annual interest rate on the revolving credit arrangement if your firm does not borrow any money during the year?

A) 0 percent
B) 5.0 percent
C) 5.2 percent
D) 5.3 percent
E) 5.5 percent