Uptown Bank Has Granted a Line of Credit of $80,000

Multiple Choice

Uptown Bank has granted a line of credit of $80,000 with an interest rate of 7.5 percent and a compensating balance requirement of 2.5 percent to Jones Hardware.The compensating balance requirement is based on the total amount borrowed.What is the effective annual interest rate if the firm needs $55,000 for one year to finance its inventory?

A) 8.80 percent
B) 9.44 percent
C) 8.12 percent
D) 7.69 percent
E) 7.78 percent