Wilson's Dry Goods Has a Line of Credit with a Local

Multiple Choice

Wilson's Dry Goods has a line of credit with a local bank for $250,000.The loan agreement calls for interest of 7.6 percent with a compensating balance requirement of 5 percent,which is based on the total amount borrowed.What is the effective interest rate if the firm needed $138,000 for one year to cover its expansion costs?

A) 8.55 percent
B) 7.60 percent
C) 8.13 percent
D) 8.38 percent
E) 8.00 percent