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What is the effective interest rate

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A company has a $10,000 line of credit with a bank. The line of credit calls for an interest rate of 10 percent and a compensating balance of 5 percent. This firm needs $5,000 of fund to pay for the inventory.

a) How much does the firm need to borrow from the bank?

b) What is the effective interest rate if the firm uses this line of credit with the compensating balance?

Reference no: EM132842731

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