The Babco Co.has a $250,000 line of credit with a 9 percent interest rate and a 10 percent compensating balance requirement that is based on the total amount borrowed.What is the effective interest rate if the firm needs $117,000 to finance some expenses? The company plans on repaying the loan in a lump sum at the end of one year.
A) 7.20%
B) 7.27%
C) 8.08%
D) 9.80%
E) 10.00%
Correct Answer:
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