Tangshan Mining Borrowed $100,000 for One Year Under a Line

Multiple Choice

Tangshan Mining borrowed $100,000 for one year under a line of credit with a stated interest rate of 7.5 percent and a 15 percent compensating balance. Normally, the firm keeps almost no money in its checking account. Based on this information, the effective annual interest rate on the loan is ________.

A) 7.5%
B) 8.0%
C) 8.8%
D) 7.2%