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What is the effective annual rate of interest on the loan

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Problem 1: Bank ABC extends a $3 million line of credit to Capital Corp. The stated rate of interest is 9.5%. Bank ABC requires Capital to maintain compensating balances equal to 10% of the amount of the line. Assuming that Capital would not normally carry any deposits at the bank, what is the effective annual rate of interest on the loan?

a. 12.3%

b. 9.5%

c. 10.6%

d. 11.6%

Reference no: EM132964527

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