Uptown Bank has granted a line of credit of $80,000 with an interest rate of 7.5 percent and a compensating balance requirement of 2.5 percent to Jones Hardware.The compensating balance requirement is based on the total amount borrowed.What is the effective annual interest rate if the firm needs $55,000 for one year to finance its inventory?
A)8.80 percent
B)9.44 percent
C)8.12 percent
D)7.69 percent
E)7.78 percent

Question

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The Answer of Uptown Bank has granted a line of credit of $80,000 with an interest rate of 7.5 percent and a compensating balance requirement of 2.5 percent to Jones Hardware.The compensating balance requirement is based on the total amount borrowed.What is the effective annual interest rate if the firm needs $55,000 for one year to finance its inventory?
A)8.80 percent
B)9.44 percent
C)8.12 percent
D)7.69 percent
E)7.78 percent

Uptown Bank Has Granted a Line of Credit of $80,000