Your Firm Has a Line of Credit with Your Local

Multiple Choice

Your firm has a line of credit with your local bank for $50,000. The loan agreement calls for interest of 9% with a 5% compensating balance requirement which is based on the total amount borrowed. What is the effective interest rate if you need $42,750 for one year to cover your operating expenses?

A) 8.55%
B) 9.00%
C) 9.13%
D) 9.38%
E) 9.47%