The Sports Store Has a $100,000 Line of Credit with City

The Sports Store has a $100,000 line of credit with City Bank.The loan agreement requires that 2 percent of the unused portion of the credit line be deposited in a non-interest bearing account as a compensating balance.The interest rate on the borrowed funds is 1.75 percent per quarter.The Sport Store's short-term investments are paying 1.5 percent per quarter.What is the effective annual interest rate on the line of credit if The Sports Store borrows the entire $100,000 for one year? Assume any funds borrowed or invested use compound interest.

A) 7.19 percent
B) 7.76 percent
C) 8.00 percent
D) 8.08 percent
E) 8.14 percent